Earnings Management and the Pricing of Initial Public Offerings

Kyoko Nagata () and Toyohiko Hachiya ()
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Kyoko Nagata: Graduate School of Decision Science and Technology, Tokyo Institute of Technology, 2-12-1 O-okayama, Meguro-ku, Tokyo, Japan
Toyohiko Hachiya: Graduate School of Decision Science and Technology, Tokyo Institute of Technology, 2-12-1 O-okayama, Meguro-ku, Tokyo, Japan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2007, vol. 10, issue 04, 541-559

Abstract: This study investigates whether the extent of earnings management has any impact on offer price in initial public offering (IPO). Using a sample of 581 JASDAQ IPO firms, we find that offer price reflects earnings management to some extent. Firms with conservative earnings management tend to have higher offer prices, and firms managing earnings aggressively tend to be discounted when they fail to exhibit smooth earnings growth. These results are consistent with the hypothesis that underwriters adjust for the effect of earnings management to appropriately pricing the issues. Overall, our evidence could lead to another explanation for IPO underpricing.

Keywords: Initial public offerings; earnings management; consecutive earnings increases; underpricing (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (11)

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DOI: 10.1142/S0219091507001197

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