Earnings management of initial public offering firms: evidence from regulation changes in China

Jianlei Liu, Konari Uchida, Ruidong Gao and Peter Clarkson

Accounting and Finance, 2014, vol. 54, issue 2, 505-537

Abstract: type="main" xml:id="acfi12006-abs-0001">

Discretionary current accruals of Chinese initial public offering (IPO) firms decreased after the abolition of fixed-price offering systems that directly linked offering price to reported earnings. Results suggest IPO firms that decrease managerial ownership manage earnings upward during the fixed-price offering period, but this relationship disappeared after the introduction of a book-building system. We also find that bank debt is negatively related to discretionary current accruals during the fixed-price offering period, but no relation exists for the book-building period. Leverage has a significant positive relationship with earnings management. However, this finding is potentially attributable to nonoffering price objectives or endogeneity biases.

Date: 2014
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