Are Accruals During Initial Public Offerings Opportunistic?

Posted: 31 Aug 1999

See all articles by Siew Hong Teoh

Siew Hong Teoh

UCLA Anderson School of Management

T.J. Wong

University of Sothern California

Gita Rao

Colonial Management Associates

Abstract

We find evidence that initial public offering (IPO) firms, on average, have high positive issue-year earnings and abnormal accruals, followed by poor long-run earnings and negative abnormal accruals. The IPO-year abnormal, and not expected, accruals explain the cross-sectional variation in post-issue earnings and stock returns. The results are robust with respect to alternative abnormal accruals and earnings performance measures. IPO firms adopt more income-increasing depreciation policies when they deviate from similar prior performance same industry non-issuers, and they provide significantly less for uncollectible accounts receivable than their matched non-issuers. The results taken together suggest opportunistic earnings management partially explains the new issues anomaly.

JEL Classification: M41, M43, G24

Suggested Citation

Teoh, Siew Hong and Wong, T.J. and Rao, Gita R., Are Accruals During Initial Public Offerings Opportunistic?. Available at SSRN: https://ssrn.com/abstract=165854

Siew Hong Teoh (Contact Author)

UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://www.anderson.ucla.edu/faculty-and-research/accounting/faculty/teoh

T.J. Wong

University of Sothern California ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

Gita R. Rao

Colonial Management Associates

One Financial Center
12 Floor
Boston, MA 02111
United States
617-772-3461 (Phone)

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