When and why do IPO firms manage earnings?

• 成果类型: Article
• 署名作者: Sletten, Ewa; Ertimur, Yonca; Sunder, Jayanthi; Weber, Joseph
• 署名单位: Boston College; University of Colorado System; University of Colorado Boulder; University of Arizona; Massachusetts Institute of Technology (MIT)
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-018-9445-3
• 发表日期: 2018
• 页码: 872-906
• 关键词: initial public offerings; accrual estimation errors; Venture capitalists; LITIGATION RISK; QUALITY; MARKET; performance; incentives; companies; Lockups

摘要

There is significant disagreement about whether, when, and why IPO firms manage earnings. We precisely identify the timing and motives behind earnings management by IPO firms. The period around an IPO is characterized by two events: the IPO itself and the lockup expiration. Both the raising of capital at the IPO and the exit by pre-IPO shareholders at lockup expiration create incentives for firms to manage earnings. To disentangle the effect of these events, we examine quarterly, rather than annual, abnormal accruals. We find no evidence of income-increasing earnings management before the IPO. However, IPO firms exhibit positive abnormal accruals in the quarter before and the quarter of the lockup expiration. Positive abnormal accruals are concentrated in less scrutinized firms and firms with high selling by pre-IPO shareholders. Moreover, we find that these accruals subsequently reverse and that such reversals contribute to long-run IPO underperformance.