Post-Initial Public Offering Earnings Management Driven by Insider Selling Motives: Using KOSDAQ Initial Public Offerings

Cheon, Youngsoon; Moonchul, Kim; Hwang, Munho

doi:10.1111/j.2041-6156.2011.01052.x

Cited by 4 publications

(1 citation statement)

References 33 publications

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“…Instead, they wait for the expiration of mandatory lockup agreement set by the capital market regulator or underwriters to liquidate their holdings (Aggarwal et al, 2002). Consistent with this notion, recent studies document that issuer firms engage in earnings management subsequent to the IPO, partly because of the selling incentive created by lockup expiration (Cheon et al, 2011;Sletten et al, 2018;Wongsunwai, 2013). As the pre-IPO shareholders generally retain a certain level of holdings in the new issue firm to convert into cash at a future date, expiration of lockup agreements gives them the first opportunity to sell their holdings.…”

Section: Institutional Settingmentioning

confidence: 91%

Ownership dilution and earnings management: evidence from Indian IPOs

Purayil

Lukose

2019

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Purpose Prior research on earnings management largely assumes that newly public firms manage earnings opportunistically around IPOs. However, only a few studies have empirically examined the real motives behind newly public firms’ earnings management. The purpose of this paper is to examine the impact of ownership dilution on earnings management among IPO firms. The authors chose the setting of security offerings in an emerging market, which is characterised by unique ownership structure, to examine the possible incentive of owners or pre-IPO shareholders to engage in earnings management. Design/methodology/approach The study employs accrual and real transactions measures to check the presence of earnings management among 409 IPO firms from India during the period 2000‒2018. Subsequently, using ordinary least squares regression models with heteroscedasticity-robust standard errors, this paper examines the relationship between earnings management and selling or dilution incentives of pre-IPO shareholders. Findings The study finds that the degree of earnings manipulation by issuer firms is positively associated with the ownership dilution at the time of IPO as well as around lockup expiration. Practical implications The findings of this study will help the investors and regulators to understand the practice of earnings management among IPO firms and how it is linked to the ownership dilution of pre-IPO shareholders. Originality/value The paper contributes to the limited stream of research that investigates the motives of earnings management among IPO firms. It empirically establishes an association between the selling incentive of pre-IPO shareholders and earnings management.

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Section: Institutional Settingmentioning

confidence: 91%

Ownership dilution and earnings management: evidence from Indian IPOs

Purayil

Lukose

2019

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Looking at the IPO from the “top floor”: a literature review

et al. 2017

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Insider Trading, Informativeness, and Price Efficiency Around the World

Kim

Wang

et al. 2019

Asia-Pac J of Fin Stud

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This paper provides the first direct evidence of the impact of enforcing insider regulations on the informativeness of insider trades and stock price efficiency across 44 countries with varying levels of insider trading regulations. Results suggest that insider purchases earn abnormal profits, especially in countries with active enforcement of insider trading regulations. We further show that while insiders trade less before earnings announcements in countries with active enforcement, their stock prices react more to earnings news than those in countries without active enforcement. Overall, our results support the view that effective insider trading regulation promotes price efficiency.

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Post-Initial Public Offering Earnings Management Driven by Insider Selling Motives: Using KOSDAQ Initial Public Offerings

Cited by 4 publications

References 33 publications

Ownership dilution and earnings management: evidence from Indian IPOs

Ownership dilution and earnings management: evidence from Indian IPOs

Looking at the IPO from the “top floor”: a literature review

Insider Trading, Informativeness, and Price Efficiency Around the World

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