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. © 1998 Kluwer Academic Publishers.