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 paper, the authors argue that such objective, independent and exogenous certifying mechanism provides a better opportunity to test the well established certification hypothesis, especially in the context of emerging markets with institutional voids.
Abstract: In the year 2007, Indian capital market regulator-SEBI, introduced a unique certification mechanism for IPOs whereby all IPOs have to undergo mandatory quality grading by independent rating agencies. In this paper we argue that such objective, independent and exogenous certifying mechanism provides a better opportunity to test the well established certification hypothesis, especially in the context of emerging markets with institutional voids. Using a sample of 163 Indian IPOs we test the efficacy of IPO grading mechanism. We find, grading decreases IPO underpricing and positively influences demand of retail investors. Grading reduces secondary market risk and improves liquidity. However, grading does not affect long run performance of the IPOs. IPO grading successfully capture firm size, business group affiliation and firm’s quality of corporate governance. Our findings imply that, in emerging markets, regulator’s role to signal the quality of an IPO contributes towards the market welfare.
63 citations
TL;DR: The authors examine the association of earnings management and narrative impression management as reflected in properties of causal explanations of reported earnings in the prospectus of Chinese IPO firms and find evidence of close alignment of a firm's earnings management propensity and its use of tactical causal disclosures.
57 citations
"Impact of IPO grading on earnings m..." refers background in this paper
...Building on expectations of managerial agency and control, Aerts and Cheng (2011) examine the association of earnings management and narrative impression management in Chinese IPO prospectuses....
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...For a sample of Chinese IPOfirms, Aharony et al. (2010) show that related-party sales of goods and services could be used opportunistically to manage earnings upwards in the pre-IPO period....
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TL;DR: In this paper, the authors investigate the role of underwriter reputation in the performance of an initial public offering (IPO) and find a negative relationship between earnings management and the post-offer performance.
Abstract: This study contributes to the extant literature on the nature of earnings management surrounding initial public offerings (IPOs) by investigating the role of underwriter reputation. We argue that prestigious underwriters will protect their reputation by carefully monitoring and certifying financial information on IPO firms, thereby limiting any potential earnings manipulation. As a result, those IPO firms that are associated with more prestigious underwriters are likely to exhibit substantially less-aggressive earnings management. Conversely, we find the existence of a negative relationship between earnings management and the post-offer performance of an IPO firm’s stocks only for those firms associated with less-prestigious underwriters.
55 citations
"Impact of IPO grading on earnings m..." refers background in this paper
...Studies show that thesemechanismsmight involve the reputation of the certifying entity on one hand and self-selection bias of the issuers on the other (Brau and Johnson, 2009; Chang et al., 2010)....
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TL;DR: In this article, the authors hypothesize that moral hazard and asymmetric information are dominant motivations for the use of IPO lockup provisions, rather than consider them to be mutually exclusive motivations, and provide empirical support for a set of hypotheses concerning the lockup period.
Abstract: Moral hazard and asymmetric information have both been proposed as the motive behind the use of IPO lockup provisions, with each receiving empirical support in the literature. Rather than consider them to be mutually exclusive motivations, we hypothesize that each is dominant for a different set of firms. We provide novel empirical support for the underwriter certification hypothesis then use this hypothesis to categorize the firms in our sample. Firms that are certified by a reputable underwriter see a reduction in the severity of asymmetric information relative to other firms and therefore will be more likely to see moral hazard as the friction that motivates the use of the lockup provision. For those firms that are unable to obtain high reputation underwriter certification it is relatively more likely that asymmetric information is the motivation for the use of the lockup provision. Based on this separation of firms we introduce and provide empirical support for a novel set of hypotheses concerning the lockup period.
54 citations
TL;DR: In this article, the authors hypothesize that moral hazard and asymmetric information are dominant motivations for the use of IPO lockup provisions, rather than consider them to be mutually exclusive motivations, and provide empirical support for a set of hypotheses concerning the lockup period.
45 citations