The Examination of Initial Public Offering Firm’s Earnings Quality and Subsequent Stock Returns

• Main Authors: Chia-Tzung Liu, 劉嘉宗
• Other Authors: Ching-Lung Chen
• Format: Others
• Language: zh-TW
• Published: 2007
• Online Access: http://ndltd.ncl.edu.tw/handle/93411674641007541458

碩士 === 朝陽科技大學 === 會計所 === 95 === The present study examines the possible aggressive earnings reporting of initial public offerings (IPO) during 1996 ~ 2004. Although managers may have incentive to manipulate offering price by way of aggressive earnings reporting, Gul et al. (2003) argues that both the opportunistic earnings management and informative earnings signaling are observed from managerial reporting behaviors in the new issues period. This study adopts discretionary accruals to proxy earnings quality and examines the association between earnings quality with IPO-firms’ short-term versus long-term post-offering market performance. Since the discretionary accruals reversals may render earnings management activities transparent enough to trigger lawsuits against the firm and its management. The present study expects that the initial public offering firms will face strictly legal scrutiny and possibly reputation pressure after market, thus, the possible short-term vs. long-run market under-performance observed in the prior research will disappear in Taiwan IPO market. The empirical results evidence positive association between discretionary accruals with IPO firms’ underpricing. It is also found that the long-term market performances of higher discretionary accruals sub-samples are not differential from the lower discretionary accruals sub-samples. These findings suggest IPO firms’ aggressive earnings disclosure is signaling high growth opportunities in opposition to opportunistic earnings reporting.