Companies are very important contributors to the long-term sustainable wealth of economies and society. Public companies are likely to be especially important for economic, environmental, and social development. That is why we focus on initial public offerings (IPO). Responsible external reporting relates to the long-term value of companies and influences perceptions of value by stakeholders. This study contributes to the literature not only because it concentrates on earning quality in terms of going public, but it also combines it with another market puzzle, namely, long-term value. Previous conclusions for other markets should not simply be generalized for Poland, as the country has been an emerging market with many public firms controlled by insiders, with a limited role for the equity market and quite considerable bank financing. Using a unique dataset, we find positive and significant discretionary accruals in the IPO year, which may be perceived as a sign of poor earning quality. We also show that these accruals are negatively correlated with subsequent long-term market value for IPOs made before the financial crisis. The general conclusions are robust with respect to the latest innovations in proxies for earnings management, and also to a variety of alternative specifications.
The paper documents short-and long-run performance of initial public offerings on the Warsaw Stock Exchange from 1998 to 2008. The study reveals positive initial market-adjusted returns of 13.95 percent and significant long-term underperformance with mean of -22.62 percent for the three-year buy-and-hold strategy. We introduce ordinary least squares regressions to find determinants of initial returns. Our findings document strong explanatory power of early aftermarket volatility, issuer's size, growth opportunities, and profitability before the offering. Moreover, those variables that can partly explain differences in initial returns can also help to shed light on the long-term underperformance issue. Our results are thus consistent with Miller's (1977) divergence of opinion hypothesis.
The paper focuses on the long-term price performance after seasoned equity offerings (SEOs). In particular, the research contributes to the debate on the importance of the benchmark design in an emerging market. The choice of Indian SEOs as a sample allowed for constructing six benchmarks and comparing the results with the main market index. The study confirmed three-year underperformance for all of the benchmarks. However, the level of abnormal long-term returns appeared to be very sensitive to the benchmark. Interesting conclusions also emerged from differentiating the sample according to the level of the shortterm underpricing, company and issue size, market sentiment, and mean volatility of prior returns. While the conventional view was that SEOs underperform in the long run, the research showed that average abnormal returns, differentiated according to firm and issue characteristics, were very sensitive to the reference portfolio.
The study investigates the price behavior after initial public offerings (IPOs) listed on the Warsaw Stock Exchange from 2004 to 2009. It focuses on possible explanations for the IPO phenomenon within the context of Poland and provides evidence on the relation between both the company size and profitability and the aftermarket price performance. The study aims to answer three questions. First, whether we could observe the short -term underpricing and the long -term underperformance of Polish IPOs, including the financial crisis period. Second, if the IPO anomalies did exist, whether they were distinct for the size and profitability subsamples. Finally, the change of the profitability was investigated for size subsamples from before to after going public. A lower level of the underpricing and three -year underperformance was reported in comparison to the previous WSE studies. The pre-issue company size influences the IPO underpricing with the higher level of returns for smaller companies. Concerning the long -term performance, the opposite relation between size and buy-and-hold abnormal returns was found. It was also found that the higher the pre-issue profitability, the higher the underpricing. Large companies experience a better profitability improvement in the pre-IPO period with the profitability ratios getting worse not so rapidly after the flotation.
The informativeness of financial reports has been of a great importance to both investors and academics. Earnings are crucial for evaluating future prospects and determining company value, especially around milestone events such as initial public offerings (IPO). If investors are misled by manipulated earnings, they could pay too high a price and suffer losses in the long-term when prices adjust to real value. We provide new evidence on the relationship between earnings management and the long-term performance of IPOs as we test the issue with a methodology that has not been applied so far for issues in Poland. We use a set of proxies of earnings management and test the long-term IPO performance under several factor models (CAPM, and three extensions of the Fama-French model). Aggressive IPOs perform very poorly later and earn severe negative stock returns up to three years after going public. The difference in returns in accrual quantiles is statistically significant in almost half of methodology settings. The results seem to suggest that investors might not be able to discount pre-IPO abnormal accruals and could be overoptimistic. Once the true earnings performance is revealed over time, the market makes downward price corrections.
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