 The impact of audit quality on real and accrual earnings management around IPOsMohammad Alhadab and Iain Clacher The British Accounting Review, 2018, vol. 50, issue 4, 442-461 Abstract: We examine the relation between audit quality and the earnings management activities of IPO firms. The impact of high quality auditors on real earnings management has been researched in a number of settings e.g. SEOs. However, to date, there has been no work on the effect of high quality auditors on real activities-based manipulation around IPOs. We examine UK IPOs between 1998 and 2008 and find evidence that high quality auditors constrain the use of real activities manipulation that occurs via the management of discretionary expenses. We also find evidence, consistent with prior research, that high quality auditors constrain the manipulation of discretionary accruals. Crucially, we find IPO firms audited by high quality auditors undertake sales-based manipulation in order to manage earnings upward at the end of the IPO year. The presence of high quality auditors is not, therefore, sufficient to constrain all forms of earnings management. Keywords: Earnings management; Discretionary accruals; Real activities manipulation; Audit quality; Initial public offering; G14; M40; M41; M42 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:50:y:2018:i:4:p:442-461 DOI: 10.1016/j.bar.2017.12.003 Access Statistics for this article The British Accounting Review is currently edited by Nathan Lael Joseph and Alan Lowe More articles in The British Accounting Review from Elsevier |
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