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Does there prevail momentum in earnings management for seasoned equity offering firms?

Chu-Hsuan Chang and Hsiou-Wei William Lin

International Review of Economics & Finance, 2018, vol. 55, issue C, 111-129

Abstract: This study investigates the relationship between current and past period earnings manipulations for multiple seasoned equity offering (SEO) firms. These firms' discretionary accounting accruals (DAs) increase with the extent of cumulative prior DAs accompanying prior equity offers, consistent with the notion that prior earnings manipulators' continually inflate the earnings around SEOs. The prior manipulators appear to both engage in real activities as well as use accounting accruals to alter reported earnings. Nevertheless, the portfolio with the greatest allegedly cumulative manipulation and current income-increasing DAs in the issuance year generates significantly deteriorating post-issue stock returns.

Keywords: Discretionary accruals; Earnings management; Real earnings management; Seasoned equity offerings; Sequential stock offerings (search for similar items in EconPapers)
JEL-codes: G14 G32 M41 (search for similar items in EconPapers)
Date: 2018
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