We postulate that both managerial overoptimism and earnings management using accruals to boost accounting numbers effect on initial public offering (IPO) valuation. Referring to Purnandam and Swaminathan [2004], we gauge the IPO intrinsic values with respect to the offer price and the initial price. The portion that real offer (initial) price is above the intrinsic offer (initial) price is defined as offer premium (overreaction). Using 287 Taiwan's IPOs in sampling period 2004-2008, we find that most IPO firms were overpriced rather than underpriced. The offer premium is neither affected by earnings management nor managerial optimism, which is probably due to the greater scrutiny by the associated underwriters who are less gullible to managerial optimism or earnings management. In contrast, in initial market price valuation investors are cautious to take the face value of earnings management when IPO managers are perceived of moderate optimism. However, investors directly discipline overoptimistic managers with a lower initial valuation. Managerial overoptimism is the dominant factor in explaining long-run underperformance. We find that offer premium is positively associated with overreaction. Moreover, earnings management, albeit unrelated to overoptimism and offer premium, is positively related with initial overreaction and long-run underperformance.
This study examines some important characters of Real Estate Investment Trusts (REITs) in six Asia-Pacific areas including Australia, Japan, Singapore, Taiwan, Korea and Hong Kong. The results show that volatility behaviours of REITs have Generalized Autoregressive Conditional Heteroscedastic (GARCH) effects; in addition, REITs and stocks have a long term relationship in all markets.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.