Are Accruals during Initial Public Offerings Opportunistic?

Siew Hong Teoh, T. J. Wong and Gita R. Rao
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Siew Hong Teoh: University of Michigan Business School
T. J. Wong: Hong Kong University of Science and Technology
Gita R. Rao: Colonial Management Associates

Review of Accounting Studies, 1998, vol. 3, issue 1, No 12, 175-208

Abstract: Abstract We find evidence that initial public offering (IPO) firms, on average, have high positive issue-year earnings and abnormal accruals, followed by poor long-run earnings and negative abnormal accruals. The IPO-year abnormal, and not expected, accruals explain the cross-sectional variation in post-issue earnings and stock returns. The results are robust with respect to alternative abnormal accruals and earnings performance measures. IPO firms adopt more income-increasing depreciation policies when they deviate from similar prior performance same industry non-issuers, and they provide significantly less for uncollectible accounts receivable than their matched non-issuers. The results taken together suggest opportunistic earnings management partially explains the new issues anomaly.

Keywords: Stock Return; Earning Management; Initial Public Offering; Initial Public; Prior Performance (search for similar items in EconPapers)
Date: 1998
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DOI: 10.1023/A:1009688619882

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