Earnings Management and Underpricing of IPOs on an Emerging Market

Conservatism and Initial Public Offerings (IPOs) Underpricing: An Audit Quality Perspective

“…Therefore, as noted, conservationist accounting and audit quality reduce information asymmetry (Chang et al, 2008;Choi et al, 2010 andClinch et al, 2012), which can lead to fewer IPOs underpricing (Rahima and Arefin, 2010;Thomas et al, 2011;Nagata, 2013;Lizińska and Czapiewski, 2018;Yu et al, 2019;Aurora and Sing, 2019). Therefore, in order to achieve the objectives of the research and based on the theoretical and empirical backgrounds presented, the second main hypothesis and four sub-hypotheses have been formulated as follows:…”

“…With the increasing development and diversification of the capital market and its multifaceted role in the economic growth and development of the country through the facilitation and diversification of companies' access to finance, exploitation of the capability of this market is of prime importance (Li and Zhou, 2006;Yatim, 2011 andAmmer andAhmad-Zaluki, 2017). Such markets are the places where retail and unused funds are directed toward investing and applying to productive economic cycles (Guo, et al, 2004 Lizińska andCzapiewski, 2018). Given this, acceptance in such a market is often welcomed by companies because it offers many benefits such as increased capital, greater competition, tax breaks, and access to cheap financial resources (Wong et al, 2017;Yu et al, 2019).…”

“…Then, because of the long-term price drop, it will bring massive losses to investors who have recently bought shares (Loughran, et al, 1994;Yong, et al, 2001Yu et al, 2019. The results of many studies (Loughran & Ritter, 2002;Yatim, 2011;Lizińska andCzapiewski, 2018 andYu et al, 2019) indicated that in IPOs, corporate stocks are priced lower than what the investors are willing to pay. In other words, companies sacrifice the interests of their primary shareholders and, so to speak, leave a significant amount of money on the table, incurring high costs and generating abnormal positive returns for new investors (Loughran and Ritter, 2002).…”

“…In other words, as long as the information asymmetry is high, companies with low-cost IPOs provide a positive signal and incentive for investors (Drobetz et al, 2005;Yong, 2007Yatim, 2011. Other factors, including weaknesses in corporate governance, the reputation of consumers, managers' conservatism, and weaknesses in supervisory and control quality that revolves around the hypothesis of information asymmetry and signaling theory can also shape this phenomenon (Beatty and Ritter, 1986;Cliff and Denis, 2004;Albring, et al, 2007;Yatim, 2011;Chen et al, 2012;Lizińska and Czapiewski, 2018;Wong et al, 2017;Yu et al, 2019 andAnand and.…”