Earnings quality at initial public offerings

Earnings quality at initial public offerings We show that, contrary to popular belief, initial public offering (IPO) firms report more conservatively. We attribute this to the higher quality reporting demanded of public firms by financial statement users and consequentially higher monitoring by auditors, boards, analysts, rating agencies, press, and litigants, and to greater regulatory scrutiny (Ball, R., Shivakumar, L., 2005. Earnings quality in UK private firms: comparative loss recognition timeliness. Journal of Accounting and Economics 39, 83–128). We also question the evidence of Teoh et al. (1998b. Earnings management and the subsequent market performance of initial public offerings. Journal of Finance 53, 1935–1974) supporting the alternative hypothesis that managers opportunistically inflate earnings to influence IPO pricing. We conjecture that upward-biased estimates of “discretionary” accruals occur in a broad genre of studies on earnings management around similar large transactions and events. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Earnings quality at initial public offerings

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Publisher
Elsevier
Copyright
Copyright © 2008 Elsevier B.V.
ISSN
0165-4101
D.O.I.
10.1016/j.jacceco.2007.12.001
Publisher site
See Article on Publisher Site

Abstract

We show that, contrary to popular belief, initial public offering (IPO) firms report more conservatively. We attribute this to the higher quality reporting demanded of public firms by financial statement users and consequentially higher monitoring by auditors, boards, analysts, rating agencies, press, and litigants, and to greater regulatory scrutiny (Ball, R., Shivakumar, L., 2005. Earnings quality in UK private firms: comparative loss recognition timeliness. Journal of Accounting and Economics 39, 83–128). We also question the evidence of Teoh et al. (1998b. Earnings management and the subsequent market performance of initial public offerings. Journal of Finance 53, 1935–1974) supporting the alternative hypothesis that managers opportunistically inflate earnings to influence IPO pricing. We conjecture that upward-biased estimates of “discretionary” accruals occur in a broad genre of studies on earnings management around similar large transactions and events.

Journal

Journal of Accounting and EconomicsElsevier

Published: Aug 1, 2008

References

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