Timing, Earnings Management and Over-reaction Around Pure Placings
Dionysiou D (2014) Timing, Earnings Management and Over-reaction Around Pure Placings. European Journal of Finance, 21 (8), pp. 646-671. https://doi.org/10.1080/1351847X.2013.833128
This paper provides new evidence about firms conductingpureplacings in the UK. It examines their abnormal performance (stock and operating), earnings management (accrual and real activities) and abnormal growth prospects for up to three years surrounding the event. It questions whether (i) timing, (ii) earnings management and/or (iii) over-reaction hypotheses can explain these performance, earnings quality and growth paths. The results document that pure placing firms have high earnings quality and abnormally high growth opportunities at the announcement. For this reason, the market is overenthusiastic. It expects more than what is eventually fulfilled, in line with the over-reaction hypothesis. Weak evidence that placing firms may exploit market timing is noted, whilst there is no supportive evidence of earnings management. These findings distinguish the earnings quality and growth opportunities of pure placing firms from that of firms conducting open offers, firm commitment offers and other seasoned equity offerings (SEO) that are not private placements, for which prior evidence reports mainly timing and/or earnings management prior to the event. This paper facilitates a better understanding of UK SEO.
abnormal performance; earnings management; growth opportunities; over-reaction; timing; G11; G14; G30; G32
European Journal of Finance: Volume 21, Issue 8
|Publication date online||26/02/2014|
|Date accepted by journal||30/07/2013|
|Publisher||Taylor and Francis|