Abnormal Accruals in Newly Public Companies: Opportunistic Misreporting or Economic Activity?

• 成果类型: Article
• 署名作者: Armstrong, Christopher; Foster, George; Taylor, Daniel
• 署名单位: University of Pennsylvania; Stanford University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2015.2179
• 发表日期: 2016
• 页码: 1316-1338
• 关键词: misreporting; earnings management; financial reporting quality; accruals; incentives; Insider trading; Initial public offering; new issues puzzle; INVESTMENT

摘要

Newly public companies tend to exhibit abnormally high accruals in the year of their initial public offering (IPO). Although the prevailing view in the literature is that these accruals are caused by opportunistic misreporting, we show that these accruals do not appear to benefit managers and instead result from the normal economic activity of newly public companies. In particular, and in contrast to the notion that managers benefit from inflating accruals through an inflated issue price, inflated post-IPO equity values, and increased insider trading profits, we find no evidence of a relation between abnormal accruals and these outcomes. Instead, consistent with these accruals resulting from normal economic activity, we find that these accruals are attributable to the investment of IPO proceeds in working capital and that controlling for the amount of IPO proceeds invested in working capital produces a more powerful accrual-based measure of misreporting.