| Summary: | 碩士 === 銘傳大學 === 財務金融學系碩士在職專班 === 91 === The purpose of this study is to explore whether or not discretionary accruals in OTC listed companies has increased significantly before initial public offerings（IPO）,which indicates the existence of the behavior of earnings management. We also analyze the stock returns and the operating performance of OTC listed companies after being listed on OTC market to see whether or not there exists a negative relationship between earnings management before IPO and stock returns after IPO. Finally, we examine whether or not the annual operating performance of these OTC listed companies has decreased significantly after IPO.
The sample of this research includes new IPOs during the period of 1996 to 1999. The total number of new IPOs is 212. After adopting the Modified Jones Model to evaluate discretionary accruals, we utilize the buy-and-hold stock return and return on equity after an adjustment by the industry to measure the required stock returns and the operating performance of these companies. The empirical results are summarized as follows:
1.The discretionary working capital accruals of OTC listed companies have significantly increased during the period of IPO, which implies that the behavior of earnings management does exist and the financial statements of these companies look healthy through manipulating the discretionary working capital accruals;
2.Stock returns of the lowest degree of earnings management for OTC listed companies before IPO shows significantly higher than that of the highest one, indicating there exists negative relationship between the degree of earnings management for OTC listed companies before IPO and their stock returns after IPO;
3.Return on equity of OTC listed companies before IPO is significantly higher than that after IPO, implying that the elimination of motivation in earnings management and the reverse of originally adjusted items would cause decreased return on equity after IPO, and hence the worse operating performance to be depressed.
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