Earnings Management in IPO Lockup and Operating Underperformance

• Main Authors: Hsiao-Chi Liu, 劉筱琪
• Other Authors: Chih-Jen Huang
• Format: Others
• Language: en_US
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/95k8br

碩士 === 靜宜大學 === 財務金融研究所 === 97 === This study investigates the relationship between managers’ strategic behavior on initial public offering (IPO) lockup earnings management and the operating performance after lockup expiration. After an IPO, most existing shareholders are subject to a lockup period in which they cannot sell their shares for a prespecified time. We employ discretionary accruals (DAs) to measure the earnings management, and employ operating return on assets (OPROA) to measure the operating performance of U.S. IPO with lockup from 1998 to 2006. This study predicts that managers will adjust DAs to increase lockups earnings before they sell their own firms’ shares in lockups expiration. However, the operating performance suffers when earnings reverses, resulting in lower future earnings post lockup. Our empirical results support that DAs on the quarter before lockups expiration are higher than DAs on the quarter after lockups expiration. Results also indicate negative association between the DA in lockup and the operating performance after lockup expiration. The evidence shows that the earnings management in lockup plays a key role in explaining literature findings of operating underperformance in the IPO.