Are Accruals during Initial Public Offerings Opportunistic?
- Author(s): Teoh, SH
- Wong, TJ
- Rao, GR
- et al.
Published Web Locationhttps://doi.org/10.1023/A:1009688619882
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.
Many UC-authored scholarly publications are freely available on this site because of the UC Academic Senate's Open Access Policy. Let us know how this access is important for you.