Group affiliation and earnings management of Asian IPO issuers

Group affiliation and earnings management of Asian IPO issuers We study how group affiliation, a firm being a member of a business group, affects earnings management around initial public offerings (IPOs) in nine Asian countries. Our empirical evidence shows that Asian IPO issuers tend to manage earnings more aggressively than matching non-IPO firms from the same industry: discretionary accruals are higher by 3 % of total assets. Earnings management is especially pronounced among the quartile of IPO firms with the highest dependence on external capital. However, group-affiliated issuers have substantially lower levels of earnings management compared to non-group issuers (discretionary accruals are lower by 6.8 % of total assets), even when their dependence on external capital is high. Our results suggest that group-affiliated IPO issuers in Asia can raise funds more easily than non-group issuers, and as a result they have a lower need to manipulate earnings. We also find a negative relation between underwriter reputation and earnings management, which suggests that reputable underwriters help certify the validity of information disclosure for IPOs. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Group affiliation and earnings management of Asian IPO issuers

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Publisher
Springer US
Copyright
Copyright © 2015 by Springer Science+Business Media New York
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-015-0524-2
Publisher site
See Article on Publisher Site

Abstract

We study how group affiliation, a firm being a member of a business group, affects earnings management around initial public offerings (IPOs) in nine Asian countries. Our empirical evidence shows that Asian IPO issuers tend to manage earnings more aggressively than matching non-IPO firms from the same industry: discretionary accruals are higher by 3 % of total assets. Earnings management is especially pronounced among the quartile of IPO firms with the highest dependence on external capital. However, group-affiliated issuers have substantially lower levels of earnings management compared to non-group issuers (discretionary accruals are lower by 6.8 % of total assets), even when their dependence on external capital is high. Our results suggest that group-affiliated IPO issuers in Asia can raise funds more easily than non-group issuers, and as a result they have a lower need to manipulate earnings. We also find a negative relation between underwriter reputation and earnings management, which suggests that reputable underwriters help certify the validity of information disclosure for IPOs.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Jun 5, 2015

References

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