EARNINGS MANAGEMENT AS AN EXPLANATION OF THE EQUITY ISSUE PUZZLE

María Jesús Pastor () and Francisco Poveda
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María Jesús Pastor: Universidad de Alicante
Francisco Poveda: Universidad de Alicante

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: The poor stock price performance of firms that raise capital through seasoned equity offerings is one of the recent puzzles in financial literature. In this study we investigate whether pre-issue earnings management can explain these results for rights issues in Spain. Consistent with this explanation, we notice that firms¿ issuing rights make use of discretionary accruals to report higher earnings prior to the offering. Most interestingly, the decrease in discretionary accruals the years following the offering explains the underperformance in stock returns.

Keywords: Corporate Finance; Seasoned Equity Offerings; Earnings Management; Accounting Accruals (search for similar items in EconPapers)
JEL-codes: G14 G32 M41 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2005-02
New Economics Papers: this item is included in nep-fin and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2005-04

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