When and why do IPO firms manage earnings?
There is significant disagreement about whether, when, and why IPO firms manage earnings. We precisely identify the timing and motives behind earnings management by IPO firms. The period around an IPO is characterized by two events: the IPO itself and the lockup expiration. Both the raising of capit...
| Main Authors: | , , , |
|---|---|
| Other Authors: | |
| Format: | Article |
| Language: | English |
| Published: |
Springer Science and Business Media LLC
2020
|
| Online Access: | https://hdl.handle.net/1721.1/128517 |
| _version_ | 1811069474808266752 |
|---|---|
| author | Sletten, Ewa Ertimur, Yonca Sunder, Jayanthi Weber, Joseph P |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Sletten, Ewa Ertimur, Yonca Sunder, Jayanthi Weber, Joseph P |
| author_sort | Sletten, Ewa |
| collection | MIT |
| description | There is significant disagreement about whether, when, and why IPO firms manage earnings. We precisely identify the timing and motives behind earnings management by IPO firms. The period around an IPO is characterized by two events: the IPO itself and the lockup expiration. Both the raising of capital at the IPO and the exit by pre-IPO shareholders at lockup expiration create incentives for firms to manage earnings. To disentangle the effect of these events, we examine quarterly, rather than annual, abnormal accruals. We find no evidence of income-increasing earnings management before the IPO. However, IPO firms exhibit positive abnormal accruals in the quarter before and the quarter of the lockup expiration. Positive abnormal accruals are concentrated in less scrutinized firms and firms with high selling by pre-IPO shareholders. Moreover, we find that these accruals subsequently reverse and that such reversals contribute to long-run IPO underperformance. |
| first_indexed | 2024-09-23T08:11:01Z |
| format | Article |
| id | mit-1721.1/128517 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T08:11:01Z |
| publishDate | 2020 |
| publisher | Springer Science and Business Media LLC |
| record_format | dspace |
| spelling | mit-1721.1/1285172022-09-23T11:29:18Z When and why do IPO firms manage earnings? Sletten, Ewa Ertimur, Yonca Sunder, Jayanthi Weber, Joseph P Sloan School of Management Massachusetts Institute of Technology. Department of Economics There is significant disagreement about whether, when, and why IPO firms manage earnings. We precisely identify the timing and motives behind earnings management by IPO firms. The period around an IPO is characterized by two events: the IPO itself and the lockup expiration. Both the raising of capital at the IPO and the exit by pre-IPO shareholders at lockup expiration create incentives for firms to manage earnings. To disentangle the effect of these events, we examine quarterly, rather than annual, abnormal accruals. We find no evidence of income-increasing earnings management before the IPO. However, IPO firms exhibit positive abnormal accruals in the quarter before and the quarter of the lockup expiration. Positive abnormal accruals are concentrated in less scrutinized firms and firms with high selling by pre-IPO shareholders. Moreover, we find that these accruals subsequently reverse and that such reversals contribute to long-run IPO underperformance. 2020-11-17T23:48:06Z 2020-11-17T23:48:06Z 2018-05 2020-09-24T21:38:17Z Article http://purl.org/eprint/type/JournalArticle 1380-6653 1573-7136 https://hdl.handle.net/1721.1/128517 Sletten, Ewa et al. "When and why do IPO firms manage earnings?" Review of Accounting Studies 23, 3 (May 2018): 872–906. © 2018 Springer Science Business Media, LLC en https://doi.org/10.1007/s11142-018-9445-3 Review of Accounting Studies Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ Springer Science+Business Media, LLC, part of Springer Nature application/pdf Springer Science and Business Media LLC Springer US |
| spellingShingle | Sletten, Ewa Ertimur, Yonca Sunder, Jayanthi Weber, Joseph P When and why do IPO firms manage earnings? |
| title | When and why do IPO firms manage earnings? |
| title_full | When and why do IPO firms manage earnings? |
| title_fullStr | When and why do IPO firms manage earnings? |
| title_full_unstemmed | When and why do IPO firms manage earnings? |
| title_short | When and why do IPO firms manage earnings? |
| title_sort | when and why do ipo firms manage earnings |
| url | https://hdl.handle.net/1721.1/128517 |
| work_keys_str_mv | AT slettenewa whenandwhydoipofirmsmanageearnings AT ertimuryonca whenandwhydoipofirmsmanageearnings AT sunderjayanthi whenandwhydoipofirmsmanageearnings AT weberjosephp whenandwhydoipofirmsmanageearnings |