Earnings Management in IPOs: Determinants and Post-IPO Performance

Citation

Ahmad-Zaluki NA, Campbell K & Goodacre A (2009) Earnings Management in IPOs: Determinants and Post-IPO Performance. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=963085#Link%20to%20http://ssrn.com/abstract=963085

Abstract
The paper provides general evidence of income-increasing earnings management in Malaysian IPOs but this occurs primarily during a period of severe economic stress (the East Asian crisis). The requirement to provide a profit guarantee appears to reduce rather than encourage earnings management. Within this high ownership concentration market, ownership concerns also appear to constrain IPO earnings management. Owners are willing to forego 'opportunistic' earnings management and signalling opportunities to increase their likelihood of retaining control of the company post-IPO. IPO companies engaging in aggressive earnings management have significantly worse market-based performance than their more conservative counterparts, but only during the economic crisis period.

Keywords
initial public offerings; earnings management; ownership structure; long run stock market performance

People

Dr Kevin Campbell

Senior Lecturer in Finance, Accounting & Finance

Professor Alan Goodacre

Emeritus Professor, Accounting & Finance