Earnings Management During Lockup in Explaining IPO Operating Underperformance

Tsai-Ling Liao (), Chih-Jen Huang () and Hsiao-Chi Liu ()
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Tsai-Ling Liao: Department of Business Administration, National Formosa University, Taiwan
Chih-Jen Huang: Department of Finance Providence University, Taiwan
Hsiao-Chi Liu: Department of Finance, Providence University, Taiwan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2015, vol. 18, issue 01, 1-21

Abstract: This study examines the relationship between initial public offering (IPO) managers' earnings management behavior during lockup (measured with discretionary accruals, DAs) and operating performance following lockup expiration (measured with operating return on assets, OPROAs). Based on a U.S. IPO sample, the results indicate that DAs during lockup are significantly higher than after lockup expiration. In addition, the reversal effect of DAs results in a negative association of DAs in lockup with post-lockup OPROAs. This negative relation is primarily concentrated in small-sized, non-venture backed, high-tech, and hot-market issued IPOs and is consistent with prior findings that such IPO firms have poorer post-issue performance. The overall evidence supports the role of managerial earnings management behavior during lockup in explaining post-IPO operating underperformance.

Keywords: Earnings management; initial public offering; lockup; operating performance; G14; M41 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219091515500022

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