Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/28966
Title: Regulations, earnings management, and post-IPO performance : the Chinese evidence
Authors: Kao, JL
Wu, D
Yang, Z
Keywords: Earnings management
Initial public offerings
Regulations
Issue Date: 2009
Publisher: Elsevier
Source: Journal of banking and finance, 2009, v. 33, no. 1, p. 63-76 How to cite?
Journal: Journal of banking and finance 
Abstract: In this study, we examine whether government regulatory initiatives in China involving IPO by SOEs may have contributed to opportunistic behaviors by the issuer. We focus on two sets of IPO regulations issued between January 1, 1996 and February 11, 1999: pricing regulations, which stipulate that IPO prices be a function of accounting performance, and penalty regulations, which penalize IPO firms for overly optimistic forecasts. We find that IPO firms that report better pricing-period accounting performance have larger declines in post-IPO profitability, lower first-day stock returns and worse long-run post-IPO stock performance. Furthermore, IPO firms that make overoptimistic forecasts also have lower first-day returns and worse post-IPO stock performance. Using non-core earnings as the proxy for earnings management, we document some evidence that IPO firms that report higher pricing-period accounting performance have engaged in more income-increasing earnings management. Hence, pricing regulations may have induced IPO firms to inflate pricing-period earnings and affect the post-IPO performance negatively. On the other hand, penalty regulations have deterred IPO firms from making overoptimistic earnings forecast and therefore have a positive impact on the behavior of IPO firms.
URI: http://hdl.handle.net/10397/28966
ISSN: 0378-4266
EISSN: 1872-6372
DOI: 10.1016/j.jbankfin.2007.03.016
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