Do IPO Firms Misclassify Expenses? Implications for IPO Price Formation and Post-IPO Stock Performance

• 成果类型: Article
• 署名作者: Liu, Xiaotao (Kelvin); Wu, Biyu
• 署名单位: Northeastern University; U.S. Securities & Exchange Commission (SEC); University of Nebraska System; University of Nebraska Lincoln
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3684
• 发表日期: 2021
• 页码: 4505-4531
• 关键词: IPO; classification shifting; special items; price formation; post-IPO stock performance

摘要

This study investigates whether initial public offering (IPO) firms inflate core earnings through classification shifting (i.e., misclassifying core expenses as income-decreasing special items) immediately prior to IPOs. We provide initial evidence that IPO firms engage in classification shifting in the pre-IPO period. Using hand-collected price and share information from IPO prospectuses, we find that pre-IPO classification shifting is positively associated with a price revision from the midpoint of the initial price range to the final offer price, suggesting that pre-IPO classification shifting influences IPO price formation. Furthermore, we find that pre-IPO classification shifting is negatively associated with post-IPO stock returns. Overall, our findings caution investors, auditors, and regulators that classification shifting, a seemingly innocuous accounting maneuver, can mislead investors in their IPO valuation and is associated with post-IPO underperformance.