Are Accruals during Initial Public Offerings Opportunistic?

Are Accruals during Initial Public Offerings Opportunistic? We find evidence that initial public offering (IPO) firms, on average, have high positive issue-year earnings and abnormal accruals, followed by poor long-run earnings and negative abnormal accruals. The IPO-year abnormal, and not expected, accruals explain the cross-sectional variation in post-issue earnings and stock returns. The results are robust with respect to alternative abnormal accruals and earnings performance measures. IPO firms adopt more income-increasing depreciation policies when they deviate from similar prior performance same industry non-issuers, and they provide significantly less for uncollectible accounts receivable than their matched non-issuers. The results taken together suggest opportunistic earnings management partially explains the new issues anomaly. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Are Accruals during Initial Public Offerings Opportunistic?

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Publisher
Springer Journals
Copyright
Copyright © 1998 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1009688619882
Publisher site
See Article on Publisher Site

Abstract

We find evidence that initial public offering (IPO) firms, on average, have high positive issue-year earnings and abnormal accruals, followed by poor long-run earnings and negative abnormal accruals. The IPO-year abnormal, and not expected, accruals explain the cross-sectional variation in post-issue earnings and stock returns. The results are robust with respect to alternative abnormal accruals and earnings performance measures. IPO firms adopt more income-increasing depreciation policies when they deviate from similar prior performance same industry non-issuers, and they provide significantly less for uncollectible accounts receivable than their matched non-issuers. The results taken together suggest opportunistic earnings management partially explains the new issues anomaly.

Journal

Review of Accounting StudiesSpringer Journals

Published: Oct 6, 2004

References

  • Initial Public Offerings, Accounting Choices, and Earnings Management
    Aharony, J.; Lin, C.; Loeb, M.
  • Detecting Earnings Management
    Dechow, P.; Sloan, R.; Sweeney, A.
  • Accounting Choices by Issuers of Initial Public Offerings
    Friedlan, J.
  • Annual Bonus Schemes and the Manipulation of Earnings
    Holthausen, R.; Larcker, D.; Sloan, R.
  • The Long-Run Performance of Initial Public Offerings
    Ritter, J.

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