Impact of IPO grading on earnings management

2015 ◽  
Vol 13 (2) ◽  
pp. 142-158 ◽  
Author(s):  
Yogesh Maheshwari ◽  
Khushbu Agrawal
Keyword(s):  
Earnings Management ◽  
Initial Public Offering ◽  
Design Methodology ◽  
Discretionary Accruals ◽  
Alternative Measure ◽  
Cross Sectional ◽  
Content Type ◽  
Public Offering ◽  
The Impact ◽  
First Time

Purpose – This paper aims to examine the impact of initial public offering (IPO) grading on earnings management by Indian companies in their IPOs. Specifically, it investigates whether earnings management significantly differs in the pre-IPO grading regime and post-IPO grading regime. Further, it examines whether earnings management significantly differs between high-graded and low-graded IPOs. Design/methodology/approach – The cross-sectional modified Jones model is used to obtain the discretionary accruals, a proxy for earnings management. The impact of IPO grading on earnings management is assessed using multiple regression analysis. Findings – Earnings management is significantly lower in graded IPOs as compared to the ones that are not graded. Further, among the graded IPOs, the high-graded IPOs exhibit lower earnings management as compared to the low-graded IPOs. The findings are robust to the use of an alternative measure for discretionary accruals. Originality/value – IPO grading in India is a unique certification mechanism, introduced for the first time in any market. This paper establishes the efficacy of this mandatory certification mechanism in reducing earnings management. The findings could be valuable to issuer companies, investors and market regulators.

Relationship between prestige signals and over-subscription ratio

2019 ◽  
Vol 15 (4) ◽  
pp. 564-579 ◽  
Author(s):  
Ali Albada ◽  
Othman Yong ◽  
Soo-Wah Low
Keyword(s):  
Initial Public Offering ◽  
Design Methodology ◽  
Executive Board ◽  
Cross Sectional ◽  
Content Type ◽  
Underwriter Reputation ◽  
Reputational Capital ◽  
Public Offering ◽  
The Relationship ◽  
Institutional Participation

PurposeThe purpose of this paper is to examine whether initial public offering (IPO) over-subscription is a function of firm’s prestige signals conveyed by third parties with reputational capital such as underwriter, auditor and independent non-executive board member.Design/methodology/approachThe relationship between prestige signals and over-subscription ratio (OSR) of IPOs is analysed using a cross-sectional regression based on a sample of 393 IPOs issued between January 2000 and December 2015.FindingsThe results indicate that IPOs underwritten by reputable underwriters have lower OSR than those underwritten by non-reputable underwriters. While issuer engages reputable underwriter to certify firm quality to reduce information asymmetry, the action brings with it lower initial returns for its IPO. Investors interpret the signal conveyed by issuer’s choice of underwriter from under-pricing perspective and respond accordingly by reducing IPO demand. This implies that investors regard under-pricing as a more valuable signal than firm quality signal associated with underwriter reputation. The findings also indicate that over-subscription increases in IPOs that have above average initial returns and higher institutional participation. Issuing firms that go public in a period of high IPO volume are associated with low OSR.Originality/valueThis is the first paper to examine the relationship between the prestige signals and OSR of IPOs in the Malaysian context.

scholarly journals Does Leverage Constrain Real and AEM Around IPO Corporate Event? Evidence from the Emerging Market

2019 ◽  
Vol 20 (2) ◽  
pp. 354-367
Author(s):  
Sani Hussaini Kalgo ◽  
Bany-Ariffin A.N. ◽  
Hairul Suhaimi Bin Nahar ◽  
Bolaji Tunde Matemilola
Keyword(s):  
Earnings Management ◽  
Initial Public Offering ◽  
Emerging Market ◽  
Order Theory ◽  
Agency Cost ◽  
Free Cash Flow ◽  
Cross Sectional ◽  
Pecking Order Theory ◽  
Public Offering ◽  
The Impact

The article investigates whether Malaysian initial public offering (IPO) firms engage in real and accrual earnings management (AEM) and examines the impact of leverage on the earnings management’s discretionary behaviour of the firms for the period of 2003–2013. The Dechow, Sloan, and Sweeney (1995, The Accounting Review, 70[2], 193–225) cross-sectional modified Jones model was used to estimate discretionary accruals, while Roychowdhury’s (2006, Journal of Accounting and Economics, 42[3]), 335–370) cross-sectional models were used to investigate abnormal real activity discretionary behaviour. The results indicate Malaysian IPO firms engage in real and accrual discretionary behaviour. The graphical presentations of the earnings’ management proxies indicate higher real and AEM for high-leverage firms. Similarly, the multivariate analysis indicates a positive relationship between leverage and earnings management, which is in tandem with the agency cost of free cash flow theory and debt hypothesis. It is also consistent with the pecking-order theory of capital structure. This study suggests that regulatory agencies and standard setters should continue to improve quality of accounting reports in order to protect investors’ invested capital.

Book-tax differences: are they affected by equity-based compensation?

2015 ◽  
Vol 28 (3) ◽  
pp. 300-318 ◽  
Author(s):  
Chunwei Xian ◽  
Fang Sun ◽  
Yinghong Zhang
Keyword(s):  
Earnings Management ◽  
Design Methodology ◽  
Discretionary Accruals ◽  
Tax Planning ◽  
Managerial Discretion ◽  
Cross Sectional ◽  
Content Type ◽  
Equity Incentives ◽  
Alternative Measures ◽  
High Level

Purpose – This study aims to investigate the moderating effect of equity-based compensation on the sources of book-tax differences. The authors investigate whether equity-based compensation affects the association between book-tax differences and tax planning, and the association between book-tax differences and earnings management. Design/methodology/approach – The authors use a sample of 9,024 firm-year observations (913 firms) spanning the period 1992-2011, obtained from ExecuComp and Compustat. They estimate cross-sectional regressions of the proxy for tax planning, discretionary accruals and their interactions with equity-based compensation on book-tax differences. Findings – The authors find that tax planning-related book-tax differences increase as the equity-based pay of executives does, and that earnings management-related book-tax differences decrease as the equity-based pay of executives increases. The results are robust across three alternative measures of tax planning. Originality/value – Equity-based compensation plays an important role in managerial discretion on tax planning and earnings management. The findings suggest that, although equity incentives promote a high level of both tax planning and earnings management, they motivate managers to constrain the level of earnings management to avoid larger book-tax differences.

The impact of changes in regulations on Malaysian IPOs

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rasidah Mohd-Rashid ◽  
Ahmad Hakimi Tajuddin ◽  
Karren Lee-Hwei Khaw ◽  
Chui Zi Ong
Keyword(s):  
Initial Public Offering ◽  
Ordinary Least Squares ◽  
The Body ◽  
Quadratic Term ◽  
Cross Sectional ◽  
Content Type ◽  
Body Of Knowledge ◽  
Public Offering ◽  
Logit Regression Model ◽  
The Impact

Purpose This study aims to examine the changes in equity guidelines and initial returns in the Malaysian initial public offering (IPO) market. Design/methodology/approach The study uses cross-sectional data over 16 years from 2000 to 2016. It uses ordinary least squares for the baseline model and incorporates an interaction term, quantile regression, quadratic term, break test and logit regression model for further analysis. Findings The results support the propositions that lockup provisions signal commitment and demand increase initial returns. The revision in the Bumiputera equity requirement means that issuers no longer need to discount offer prices to entice investors. Finally, the revised Sharīʿah-compliance screening requirement ensures that stocks are better in quality and more transparent, leading to a higher demand that drives prices upwards. Research limitations/implications This study’s findings provide insights into how issuers can secure good subscriptions. Besides, policymakers should ensure that firms disclose the required information in their prospectuses. Originality/value This study adds to the body of knowledge on whether and how the regulatory requirements affect IPO initial returns.

The impact of the COVID-19 pandemic on autistic adults – a survey

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Conor James Davidson ◽  
Keri Lodge ◽  
Alwyn Kam
Keyword(s):  
Coping Strategies ◽  
Design Methodology ◽  
Online Survey ◽  
Negative Impact ◽  
Significant Deterioration ◽  
Cross Sectional ◽  
Content Type ◽  
Autistic People ◽  
Autistic Adults ◽  
The Impact

Purpose To date there has been limited research on the impact of the COVID-19 pandemic on autistic people. This study aims to present the results of a survey of autistic people (n = 51) conducted by a UK specialist autism team. Design/methodology/approach A cross-sectional online survey. Findings A total of 72% respondents reported either some or significant deterioration in mental health during the pandemic. The issues that caused most negative impact were uncertainty over what will happen next and disruption of normal routine. Respondents reported a variety of coping strategies to help them through the pandemic. Originality/value To date there has been little research looking specifically at the impact of the COVID-19 pandemic on autistic people. This paper adds weight to the evidence that the pandemic has had a particularly severe impact on autistic adults and includes useful information on potential coping strategies for this population.

Does prospectus information matter in IPO pricing?

2018 ◽  
Vol 9 (4) ◽  
pp. 514-530 ◽  
Author(s):  
Rasidah Mohd-Rashid ◽  
Mansur Masih ◽  
Ruzita Abdul-Rahim ◽  
Norliza Che-Yahya
Keyword(s):  
Initial Public Offering ◽  
Institutional Investors ◽  
Ordinary Least Squares ◽  
Quadratic Model ◽  
Cross Sectional ◽  
Content Type ◽  
Ipo Pricing ◽  
The Government ◽  
Public Offering ◽  
Lower Uncertainty

Purpose The purpose of this study is to identify selected information from the prospectus that might signal the initial public offering (IPO) offer price. Design/methodology/approach This study uses cross-sectional data for a 14-year period from 2000 to 2014 in examining hypotheses relating to Shariah-compliant status, institutional investors, underwriter ranking and shareholder retention, with respect to their associations with the offer price of the IPOs. Further, this study uses ordinary least squares (OLS) for all models, including the models for both subsamples of Shariah- and non-Shariah-compliant IPOs. As for robustness, this study incorporates the quantile regression and quadratic model. Findings The results tend to provide support for the argument that firms with Shariah-compliant status reflect lower uncertainty and project better signalling of quality due to greater scrutiny by the government and thus are able to offer IPOs at higher prices. Similarly, firms with a higher proportion of shareholder retention indicate lower risks as insiders forego their options to diversify their portfolio, and hence could price their IPOs higher. Finally, the involvement of institutional investors and higher underwriter ranking could be used by firms to disregard information asymmetry, and therefore, the issuer might have to discount the IPO offer price. Research limitations/implications This study focuses solely on information in the prospectus that should not be disregarded by the investors in valuing the appropriateness of the IPO offer price. This study contributes in terms of providing a better understanding of the determinant factors of the IPO offer price of the firms which are Shariah-compliant. Originality/value This paper provides evidence for the determinants of the IPO offer price in a fixed pricing mechanism for both Shariah-and non-Shariah-compliant IPOs.

Do discretionary accruals affect firms’ corporate dividend policy? Evidence from France

2018 ◽  
Vol 16 (2) ◽  
pp. 333-347 ◽  
Author(s):  
Anis Ben Amar ◽  
Olfa Ben Salah ◽  
Anis Jarboui
Keyword(s):  
Earnings Management ◽  
Dividend Policy ◽  
Positive Impact ◽  
Panel Data Analysis ◽  
Negative Relationship ◽  
Discretionary Accruals ◽  
Additional Measure ◽  
Ample Evidence ◽  
Content Type ◽  
The Impact

Purpose In financial literature, dividend payout decisions are determined by factors such as debt, liquidity, profitability, size and risk. The purpose of this paper is to identify the effect of earnings management measured by discretionary accruals based on Dechow et al.’s (1995) model on dividend policy. Design/methodology/approach This research will use panel data analysis to test the effect of earnings management on dividend policy. The authors selected 280, French non-financial companies, listed on the CAC All Tradable index for the 2008-2015 period. Findings Using a sample of 2108 firm-year observations, the authors find a positive impact of earnings management on dividend policies of firms. Besides, there is a positive/negative relationship between the size of the firm and the dividend policy. Moreover, this paper has dealt with some factors such as debt, the risk of the firm and liquidity which may affect the corporate dividend policy. The results are robust as the authors adopted an additional measure of dividend policy. Practical implications The findings may have important implications for analysts, investors, regulators and academics. First, the study shows that earnings management is a common practice in the French context and constitutes a major objective of dividend policy. Better still, identifying the other variables that influence the dividend policy provides a clearer understanding of dividend policy for investors, analysts and academics alike. Second, the study provides ample evidence of agency problems between various partners in French capital markets, highlighting the necessity to establish new corporate governance mechanisms. This is highly relevant for policymakers in their quest for a better financial market. Originality/value This study extends the literature on the impact of dividend thresholds on earnings management by showing that firms run earnings to inform the market that the company can distribute dividends.

Impact of the liability of foreignness, domicile of incorporation and an institutional change on reverse merger firms’ capital-raising performance

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ho Wook Shin ◽  
Seung-Hyun (Sean) Lee ◽  
Min-Jung Lee
Keyword(s):  
Institutional Change ◽  
International Business ◽  
Initial Public Offering ◽  
Design Methodology ◽  
Liability Of Foreignness ◽  
Entry Barrier ◽  
Content Type ◽  
Reverse Merger ◽  
The Usa ◽  
Public Offering

Purpose The purpose of this study is to examine how the liability of foreignness (LOF), choice of incorporation and an institutional change independently and jointly affect a reverse merger (RM) firm’s capital-raising performance. Design/methodology/approach The study draws on the data of shell reverse merger transactions in the USA from 2007 to 2016. Findings This paper finds that LOF and the choice of incorporation as a signal have a significant effect on RM firms’ capital-raising performance. In addition, this study finds that the effectiveness of the signaling can be affected by LOF. Finally, this paper finds that an institutional change that lowers the entry barrier to the initial public offering (which is a superior alternate to an RM) affects the impacts of LOF and signaling on RM firms’ capital-raising performance. Originality/value The study contributes to the international business literature by examining the RM (which has been an under-researched topic in the literature) by drawing on the LOF framework. The study finds that LOF and the choice of state for incorporation affect RM firms’ capital-raising performance; moreover, these relationships are affected by an institutional change.

COVID-19 news in USA and in China: Which is suitable in explaining the nexus among Bitcoin and Gold?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdelkader Derbali ◽  
Kamel Naoui ◽  
Lamia Jamel
Keyword(s):  
Design Methodology ◽  
Conditional Heteroskedasticity ◽  
Conditional Correlation ◽  
Predictive Capacity ◽  
Content Type ◽  
Dynamic Conditional Correlation ◽  
The Hours ◽  
Important Correlation ◽  
The Impact ◽  
First Time

Purpose The purpose of this paper is to examine empirically the impact of COVID-19 pandemic news in USA and in China on the dynamic conditional correlation between Bitcoin and Gold. Design/methodology/approach This paper offers a crucial viewpoint to the predictive capacity of COVID-19 surprises and production pronouncements for the dynamic conditional correlation (DCC) among Bitcoin and Gold returns and volatilities using generalized autoregressive conditional heteroskedasticity-DCC-(1,1) through the period of study since July 1, 2019 to June 30, 2020. To assess the unexpected impact of COVID-19, this study pursues the Kuttner’s (2001) methodology. Findings The empirical findings indicate strong important correlation among Bitcoin and Gold if COVID-19 surprises are integrated in variance. This study validates the financialization hypothesis of Bitcoin and Gold. The correlation between Bitcoin and Gold begin to react significantly further in the case of COVID-19 surprises in USA than those in China. Originality/value This paper contributes to the literature on assessing the impact of COVID-19 confirmed cases surprises on the correlation between Bitcoin and Gold. This paper gives for the first time an approach to capture the COVID-19 surprise component. Also, this study helps to improve financial backers and policymakers' comprehension of the digital currencies' market elements, particularly in the hours of amazingly unpleasant and inconspicuous occasions.

The role of audit committees in mitigating earnings management: evidence from Jordan

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Taha Almarayeh ◽  
Modar Abdullatif ◽  
Beatriz Aibar-Guzmán
Keyword(s):  
Developing Countries ◽  
Earnings Management ◽  
Audit Committee ◽  
Discretionary Accruals ◽  
Least Square ◽  
Audit Committees ◽  
Institutional Setting ◽  
Content Type ◽  
The Impact

PurposeThis study examines the relationship between audit committees (ACs) and earnings management (EM) in the developing country context of Jordan. In particular, it investigates whether audit committee attributes, including their size, independence, expertise and meetings, are able to restrict discretionary accruals as a proxy for EM.Design/methodology/approachThe generalized least square (GLS) regression was used to study the association between audit committee attributes and discretionary accruals, as a proxy of EM, for a sample of industrial firms listed on the Amman Stock Exchange (ASE) during the period 2012–2020. Data were obtained from the firms' annual reports.FindingsThe regression results indicate that audit committee independence is the only audit committee attribute that seems to improve the effectiveness of ACs, in that it is significantly associated with less EM, while other audit committee attributes that were tested do not show statistically significant associations.Research limitations/implicationsIn emerging markets, like Jordan, ACs may not be an efficient monitoring mechanism; therefore, it can be argued that the prediction made by the agency theory about the role of ACs in mitigating opportunistic EM activities does not necessarily apply to all contexts.Practical implicationsA better understanding of audit committee effectiveness in developing countries could help regulators in these countries assess the impact of planned corporate governance (CG) reforms and to better monitor and enhance the performance of ACs.Social implicationsIn a setting characterized by closely held companies, high power distance and low demand for high-quality CG mechanisms, this study contributes to understanding how this business system operates, and how improving CG mechanisms could be successful in such cultures.Originality/valueThis study investigates the under-researched relationship between audit committee characteristics and EM in developing countries. In so doing, it aims to provide new insights into this relationship within the developing context case of Jordan, including if and how the institutional setting influences this relationship.

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