Earnings management and initial public offerings: Evidence from the Netherlands

Roosenboom, Peter; Goot, Tjalling van der; Mertens, Gerard

doi:10.1016/s0020-7063(03)00048-7

Cited by 125 publications

(121 citation statements)

References 21 publications

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“…We see some evidence that accruals reverse 3 years beyond the IPO year. Similar results are reported for the US (reversal in year +2, Teoh et al, 1998;in year +5, Teoh et al,1998a) but Roosenboom et al (2003) report a significant DCA reversal to -4.4% in year +1 in the Netherlands.…”

Section: Univariate Analysissupporting

confidence: 77%

“…They argue that investors are misled by the high earnings numbers reported at the time of IPOs and so put too high a price on the new issues. A similar negative relationship between the size of the DCA in the IPO year and stock returns over the next three years is found for both Dutch (Roosenboom et al, 2003) and Spanish IPOs (Pastor-Llorca & Poveda-Fuentes, 2006). This negative relationship between earnings management and subsequent stock return performance is used to argue that opportunistic IPO earnings management has the potential to (at least partially) explain long term stock market return underperformance of IPOs.…”

Section: Earnings Management and Post-ipo Long Run Stock Market Perfosupporting

confidence: 67%

“…The level of IPO year (year 0) income-increasing earnings management is slightly lower than reported for the US (median = 5.5%, Teoh et al, 1998;4.0%, Teoh et al, 1998a) and the Netherlands (3.9%, Roosenboom et al, 2003). In the first year after the IPO (year +1), the median DCA of 1.33% remains income-increasing, which suggests that Malaysian IPO companies, on average, continue to manage their earnings upwards for the financial year immediately after the IPO.…”

Section: Univariate Analysismentioning

confidence: 59%

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Earnings management in Malaysian IPOs: The East Asian crisis, ownership control, and post-IPO performance

Ahmad‐Zaluki

Campbell

Goodacre

2011

The International Journal of Accounting

125

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We find evidence of income-increasing earnings management in Malaysian IPOs, which occurs primarily for IPOs during a period of severe economic stress (the East Asian crisis). Within the high ownership concentration Malaysian market, post-IPO control concerns also appear to constrain IPO earnings management: owners seem willing to accept reduced IPO proceeds and signaling opportunities to increase the likelihood of retaining control of the company post-IPO. The requirement to provide a profit guarantee does not seem to greatly affect earnings management. IPO companies engaging in aggressive income-increasing earnings management have significantly worse market-based performance than their more conservative counterparts, but again only for IPOs issued during the economic crisis period. Overall, the results suggest that personal liquidity concerns are an important factor in IPO decisions during the economic crisis. Professor of Accounting and Finance at the University of Stirling. We appreciate the very helpful, constructive comments from Rashad Abdel-Khalik (the editor) and the two anonymous referees who have contributed significantly in helping improve the structure of the paper and the arguments therein. We have also benefited from the comments of Chris Veld, participants at the EAA Annual Conference at University College Dublin and the BAA Annual Conference at Royal Holloway, University of London. The financial support of the Malaysian government (JPA) and the Universiti Utara Malaysia is gratefully acknowledged (for Nurwati A. Ahmad-Zaluki). We thank the Public Information Centre, Kuala Lumpur Stock Exchange (Bursa Malaysia) for the usage of the library and Brahim Saadouni from the University of Manchester for the provision of his PACAP database and his collection of Malaysian prospectuses. The usual disclaimer applies. JEL classification: G32 Earnings management in Malaysian IPOs: the EastAsian crisis, ownership control and post-IPO performance AbstractWe find evidence of income-increasing earnings management in Malaysian IPOs, which occurs primarily for IPOs during a period of severe economic stress (the East Asian crisis). Within the high ownership concentration Malaysian market, post-IPO control concerns also appear to constrain IPO earnings management: owners seem willing to accept reduced IPO proceeds and signaling opportunities to increase the likelihood of retaining control of the company post-IPO. The requirement to provide a profit guarantee does not seem to greatly affect earnings management. IPO companies engaging in aggressive incomeincreasing earnings management have significantly worse market-based performance than their more conservative counterparts, but again only for IPOs issued during the economic crisis period. Overall, the results suggest that personal liquidity concerns are an important factor in IPO decisions during the economic crisis. JEL classification: G32

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Section: Univariate Analysissupporting

confidence: 77%

Section: Earnings Management and Post-ipo Long Run Stock Market Perfosupporting

confidence: 67%

Section: Univariate Analysismentioning

confidence: 59%

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Earnings management in Malaysian IPOs: The East Asian crisis, ownership control, and post-IPO performance

Ahmad‐Zaluki

Campbell

Goodacre

2011

The International Journal of Accounting

125

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“…Overall, I interpret the above results as consistent with both the opposing views of BS and TWW as well as with the results of Roosenboom et al (2003). Consistent with BS and Roosenboom et al (2003), IPO firms are unlikely to manage earnings prior to the IPO and, consistent with BS' criticism, the use of DCA 0 exaggerates the degree of earnings management.…”

Section: Effect Of Earnings Management On Ipo Long-term Performancesupporting

confidence: 75%

“…Consistent with BS and Roosenboom et al (2003), IPO firms are unlikely to manage earnings prior to the IPO and, consistent with BS' criticism, the use of DCA 0 exaggerates the degree of earnings management. However, although the average IPO firm is unlikely to engage in earnings management, the firms which manage earnings more aggressively receive an inflated IPO price are able to benefit from it.…”

Section: Effect Of Earnings Management On Ipo Long-term Performancementioning

confidence: 71%

Earnings Management Prior to Initial Public Offerings and Its Effect on Firm Performance: International Evidence

Premti¹

2013

International Journal of Financial Research

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This paper investigates the degree of discretionary current accruals (DCA -1 ) prior to the initial public offerings (IPOs) of foreign firms in an attempt to study the two seemingly opposing views of Teoh, Welch, and Wong (1998) and Ball and Shivakumar (2008) in regards to pre-IPO earnings management. By analyzing a sample of 4962 IPOs from 28 countries, I find that, on average, IPO firms do not report significantly positive DCA -1 . This result supports the view held by Ball and Shivakumar that IPO firms do not engage in earnings management and it is inconsistent with the earnings management hypothesis of Teoh et al. (1998). Furthermore, results support the criticism of Ball and Shivakumar (2008) that the use of discretionary accruals in the IPO year (DCA 0 ) is a biased measure of earnings management. However, consistent with the hypothesis of Teoh et al. (1998), results show that firms with higher discretionary accruals (DCA -1 or DCA 0 ) underperform in the long run. The negative relationship between the long-term performance and the level of DCA is robust to several measures of long-term performance (cumulative abnormal returns-CAR, buy-and-hold abnormal returns-BHAR, Fama-French 4-factor model-Alpha), to several time horizons (3 and 5 years), and holds even after controlling for several firm characteristics. Overall, the results show that although on average IPO firms don't engage in earnings management, the ones that do, underperform in the long run.

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Introduction

Gottardo¹,

Moisello²

2018

Capital Structure, Earnings Management, and Risk of Financial Distress

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Earnings management and initial public offerings: Evidence from the Netherlands

Cited by 125 publications

References 21 publications

Earnings management in Malaysian IPOs: The East Asian crisis, ownership control, and post-IPO performance

Earnings management in Malaysian IPOs: The East Asian crisis, ownership control, and post-IPO performance

Earnings Management Prior to Initial Public Offerings and Its Effect on Firm Performance: International Evidence

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