Impact of IPO grading on earnings management
10 Sep 2015-Journal of Financial Reporting and Accounting (Emerald Group Publishing Limited)-Vol. 13, Iss: 2, pp 142-158
TL;DR: In this article, the impact of initial public offering (IPO) grading on earnings management by Indian companies in their IPOs has been examined using multiple regression analysis and the cross-sectional modified Jones model is used to obtain the discretionary accruals.
Abstract: Purpose – This paper aims to examine the impact of initial public offering (IPO) grading on earnings management by Indian companies in their IPOs. Specifically, it investigates whether earnings management significantly differs in the pre-IPO grading regime and post-IPO grading regime. Further, it examines whether earnings management significantly differs between high-graded and low-graded IPOs. Design/methodology/approach – The cross-sectional modified Jones model is used to obtain the discretionary accruals, a proxy for earnings management. The impact of IPO grading on earnings management is assessed using multiple regression analysis. Findings – Earnings management is significantly lower in graded IPOs as compared to the ones that are not graded. Further, among the graded IPOs, the high-graded IPOs exhibit lower earnings management as compared to the low-graded IPOs. The findings are robust to the use of an alternative measure for discretionary accruals. Originality/value – IPO grading in India is a uni...
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TL;DR: In this paper, the authors find evidence that Indian firms which utilize reputable investment banks are less likely to manipulate pre-IPO earnings and also support the capital market staging hypothesis in India.
12 citations
28 Jun 2019
TL;DR: In this paper, the authors proposed that disclosure through corporate annual reports is intended to enhance transparency and reduce information asymmetry during public issues, and that there is something fishy about the corporate annual report.
Abstract: Disclosure through corporate annual reports is intended to enhance transparency and reduce information asymmetry during public issues. Ritter (1991) revealed that there is something fishy i...
10 citations
DOI•
01 Jul 2020
TL;DR: In this article, the authors investigated the effect of audit quality on earnings management of real-time IPO companies and found that audit quality increases in the year of initial public offerings and decreases after the initial public offering.
Abstract: According to a method of earnings management activities that administrators can manage reported earnings from the definition of real activity. In particular they can be located across time and activities in a way that accounting period to achieve a certain revenue target. Conservative attitudes of auditors in presenting their views about the independence of the auditor can considered as a remarkable point in the audit function. The Purpose of this study was to investigate the effect of audit quality on earnings management real time IPO companies. For this purpose, the data of 128 companies listed on the Tehran Stock Exchange during the years 2007 to 2017 were evaluated. The results indicated that the audit quality increases in the year of initial public offerings. The results also demonstrated that there is a significant and positive relationship between the audit fees in the year of initial public offerings and the audit fees in the year after the initial public offerings. Also findings of the research show that earnings management through accrual items has a positive and significant relationship with initial stock offerings.
6 citations
Cites background from "Impact of IPO grading on earnings m..."
...Maheshwari and Agrawal [20] investigated whether earnings management significantly differs in the preIPO grading regime and post-IPO grading regime....
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...Their findings were robust to the use of an alternative measure for discretionary accruals [20]....
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TL;DR: In this paper , the authors examined the impact of corporate governance on the shareholding level of retail investors in Indian listed firms and found that the firm-level corporate governance quality positively affects retail investors' share-holding level.
Abstract:
Purpose
The purpose of this study is to examine the impact of corporate governance (CG) on the shareholding level of retail investors in Indian listed firms.
Design/methodology/approach
Primarily, a broad CG-index was constructed based on the Indian Companies Act, 2013; Clause 49 listing agreement; and Securities Contracts (Regulation) Act, 1956. Thereafter, a panel data approach has been used to examine the association between CG attributes and retail shareholdings (RSs) during 2014–2015 and 2018–2019.
Findings
Authors find that the firm-level CG quality positively affects retail investors’ shareholding level. The results explain that among various attributes of CG, retail investors pay more attention to firms’ audit and board information while making investment decisions. The results also reveal that the influence of CG attributes on RSs is lesser for group-affiliated, mature and large-sized firms than for stand-alone, young and small-sized firms.
Practical implications
First, the study provides new insight to the firms for increasing retail-shareholding levels and complying with India’s ongoing minimum public shareholding norms by improving CG practices concerning specific CG mechanisms. Second, it illuminates the regulators and policymakers to monitor and strengthen firms’ governance quality in light of ongoing regulatory reforms.
Originality/value
This study is a new investigation that explores the impact of CG on investment decisions of retail investors from the perspective of an emerging economy.
5 citations
Dissertation•
01 Jan 2019
4 citations
Cites background from "Impact of IPO grading on earnings m..."
...According to Sundarasen, Khan, and Rajangam (2018); Mantell (2016) and Brau and Fawcett (2006), prestige and experience of underwriters affect the level of underpricing of IPOs in main market....
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...Maheshwari & Agrawal (2015) examined the Indian IPOs between the period of 2002 and 2012 to investigate the impact of graded and non-graded IPOs on the management of earnings....
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...…49 India Underpricing 32 Deng & Zhou (2015) 2009-2012 355 China Underpricing 33 Tan, Dimovski, & Fang (2015) 1996-2012 135 China Underpricing 34 Maheshwari & Agrawal (2015) 2002-2012 All India Underpricing 35 Luo, Qian, & Ren (2015) 2001-2012 120 cities China Underpricing 36 Reutzel & Belsito…...
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References
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TL;DR: In this article, the authors provide an explanation for why corporate officers manage the disclosure of accounting information and show that earnings management affects firm value when value-maximizing managers and investors are asymmetrically informed.
287 citations
"Impact of IPO grading on earnings m..." refers background in this paper
...Chaney and Lewis (1995) explain as to why firmsmanage the disclosure of accounting information....
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TL;DR: In this article, the authors examine the role of earnings management by issuers prior to making initial public offerings (IPOs) and find that pre-IPO abnormal accruals are positively related to initial firm value.
Abstract: We examine the role of earnings management by issuers prior to making initial public offerings (IPOs). Our results indicate that pre-IPO abnormal accruals are positively related to initial firm value. Entrepreneurs may seek to increase their offering proceeds, temporarily deceiving investors by opportunistically manipulating earnings through accruals management before going public. This would imply a negative relationship between abnormal accruals around the offer date and subsequent firm performance. Confirming earlier studies, we find that abnormal accruals during the offer year are significantly negatively related to subsequent firm stock returns. In addition, we find that abnormal accruals in the preceding year are also significantly negatively related to subsequent performance. Moreover, this result persists even for returns that are risk-adjusted using the multifactor CAPM of Eckbo, Masulis, and Norli (2000). Thus, it appears that aggressive pre-IPO earnings management both increases IPO proceeds an...
284 citations
TL;DR: In this paper, the authors show that related-party sales of goods and services could be used opportunistically to manage earnings upwards in the pre-IPO period, i.e., exploiting economic resources from minority shareholders for the benefit of the parent company.
270 citations
TL;DR: In this article, the authors investigated the relationship between auditor reputation and the characteristics of the IPOs that auditors take to the market and found that more prestigious auditors are associated with IPO that seem a priori less risky.
Abstract: To investigate the effect of reputation on auditor business decisions, we look at the relationship between auditor reputation and the characteristics of the IPOs that auditors take to the market. Consistent with our hypotheses, we find that: 1) More prestigious auditors are associated with IPOs that seem a priori less risky; 2) the market perceives as less risky the IPOs that are associated with more prestigious auditors; and 3) IPOs' long-term performance is related to the prestigious of the auditor employed.
239 citations
Posted Content•
TL;DR: In this article, the authors predict and find that IPO-year abnormal accruals are lower in the presence of VCs for a sample of 2630 IPO firms during 1983-2001 and provide some evidence that the lower earnings management associated with VC monitoring partially explains the superior post-IPO returns of VC-backed firms.
Abstract: Prior studies suggest that VCs play a monitoring role. We predict and find that IPO-year abnormal accruals are lower in the presence of VCs for a sample of 2630 IPO firms during 1983-2001. Our findings are robust to controls for the endogenous choice of VC financing. We consistently find that the VC effect holds even when controlling for IPO lock-up provisions, VC partial cashing out subsequent to the IPO, and alternative proxies for earnings management. In addition, our findings do not support the claims of critics that VCs inflated earnings during the internet IPO bubble. Finally, we provide some evidence that the lower earnings management associated with VC monitoring partially explains the superior post-IPO returns of VC-backed firms.
211 citations