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- Title
Earnings Management Prior to Initial Public Offerings: Evidence from Secondary Share Data.
- Authors
Cotten, Brett D.
- Abstract
Ritter (1991) first documented the long-run underperformance of initial public offering (IPO) firms. This underperformance has become known as the new issues puzzle. One possible explanation for the new issues puzzle is that managers may manipulate earnings upwards prior to IPOs, inducing mispricing that is reversed during the years following the issue (Teoh, Welch, and Wong, 1998a). I compare the performance-matched discretionary accruals and the long-run abnormal stock performance of firms issuing only primary shares with those of firms issuing only secondary shares or a combination of primary and secondary shares to examine this explanation. I find evidence supporting the hypothesis that earnings management contributes to the long-run underperformance of initial public offerings.
- Subjects
CORPORATE finance; CORPORATE profits; FINANCIAL management; CAPITAL market; GOING public (Securities)
- Publication
Quarterly Journal of Finance & Accounting, 2008, Vol 47, Issue 4, p87
- ISSN
1939-8123
- Publication type
Article