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Earnings Management and the Pricing of Initial Public Offerings

Earnings Management and the Pricing of Initial Public Offerings This study investigates whether the extent of earnings management has any impact on offer price in initial public offering (IPO). Using a sample of 581 JASDAQ IPO firms, we find that offer price reflects earnings management to some extent. Firms with conservative earnings management tend to have higher offer prices, and firms managing earnings aggressively tend to be discounted when they fail to exhibit smooth earnings growth. These results are consistent with the hypothesis that underwriters adjust for the effect of earnings management to appropriately pricing the issues. Overall, our evidence could lead to another explanation for IPO underpricing. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Pacific Basin Financial Markets and Policies World Scientific Publishing Company

Earnings Management and the Pricing of Initial Public Offerings

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References (16)

Publisher
World Scientific Publishing Company
Copyright
Copyright ©
ISSN
0219-0915
eISSN
1793-6705
DOI
10.1142/S0219091507001197
Publisher site
See Article on Publisher Site

Abstract

This study investigates whether the extent of earnings management has any impact on offer price in initial public offering (IPO). Using a sample of 581 JASDAQ IPO firms, we find that offer price reflects earnings management to some extent. Firms with conservative earnings management tend to have higher offer prices, and firms managing earnings aggressively tend to be discounted when they fail to exhibit smooth earnings growth. These results are consistent with the hypothesis that underwriters adjust for the effect of earnings management to appropriately pricing the issues. Overall, our evidence could lead to another explanation for IPO underpricing.

Journal

Review of Pacific Basin Financial Markets and PoliciesWorld Scientific Publishing Company

Published: Dec 1, 2007

Keywords: Initial public offerings earnings management consecutive earnings increases underpricing

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