Management Disclosures of Going Concern Uncertainties: The Case of Initial Public Offerings

2018 ◽  
Vol 93 (6) ◽  
pp. 29-59 ◽  
Author(s):  
Khrystyna Bochkay ◽  
Roman Chychyla ◽  
Srini Sankaraguruswamy ◽  
Michael Willenborg
Keyword(s):  
Information Content ◽  
Initial Public Offerings ◽  
Financial Incentives ◽  
Bad News ◽  
Mediating Effects ◽  
Public Offerings ◽  
Going Concern ◽  
Start Up ◽  
Initial Return ◽  
Management Disclosures

ABSTRACT We study the information content and determinants associated with voluntary management disclosures of going concern (GC) uncertainties by IPO issuers. In terms of information content, we examine IPO price revision and initial return and find robust support that management GC disclosures are associated with downward revisions in the IPO offer price and, upon considering the mediating effects of the price revision, also associated with lower initial returns. In terms of determinants, and after controlling for other factors (e.g., issuer distress, start-up status, size, cash burn), we find that the presence of a management GC disclosure is negatively associated with a proxy for issuer financial incentives to withhold “bad news” and positively associated with the extent of risk factors disclosure. Overall, our results provide support for the information content of voluntary management disclosures of GC uncertainties by IPO issuers, the presence of which is associated with agency and risk motivations. JEL Classifications: G24; G32; M13; M41.

Going-concern initial public offerings

2000 ◽  
Vol 30 (3) ◽  
pp. 279-313 ◽  
Author(s):  
Michael Willenborg ◽  
James C. McKeown
Keyword(s):  
Initial Public Offerings ◽  
Public Offerings ◽  
Going Concern

Underpricing, Risk Management, Hot Issue and Crowding out Effects: Evidence From the Australian Resources Sector Initial Public Offerings

2010 ◽  
Vol 13 (03) ◽  
pp. 333-361 ◽  
Author(s):  
Hoa Nguyen ◽  
William Dimovski ◽  
Robert Brooks
Keyword(s):  
Risk Management ◽  
Information Content ◽  
Initial Public Offerings ◽  
Crowding Out ◽  
Competition Effect ◽  
Public Offerings ◽  
The Poor ◽  
Industry Competition ◽  
Resource Sector

The main purpose of this paper is to explore the role of risk management, speculative industry competition effect and hot issue markets. We used a sample of 260 initial public offerings (IPOs) in the Australian resource sector for the 1994–2004 period to test the underpricing effect. We do not find any evidence that risk management can reduce the uncertainty relating to the new issue and hence alleviate the extent of underpricing. A plausible explanation for this lack of evidence is the poor information content of publicly available disclosures regarding risk management activities of IPO firms. We further provide evidence that the underpricing returns for resources IPOs are not impacted upon by the strength of alternative speculative IPO markets. We also show that the degree of underpricing adjusts to both market return in the preceding three months and the average underpricing of resources IPOs in the 12 month period leading to the float which offers an explanation to the hot issue effect observed in the IPO market.

The Effects of the Type and Content of Audit Reports for Financially Stressed Initial Public Offerings on Information Uncertainty

2020 ◽  
Vol 39 (1) ◽  
pp. 125-150 ◽  
Author(s):  
Steven E. Kaplan ◽  
Gary K. Taylor ◽  
David D. Williams
Keyword(s):  
Initial Public Offerings ◽  
Initial Public Offering ◽  
Data Availability ◽  
Information Uncertainty ◽  
Audit Report ◽  
Public Offerings ◽  
Going Concern ◽  
Sufficient Variation ◽  
Public Offering ◽  
Audit Reports

SUMMARY The Public Company Accounting Oversight Board (PCAOB) has expressed concern that audit reports do not contain sufficient variation to provide useful information to the market. Using a sample of financially stressed initial public offering (IPO) firms, we investigate whether information uncertainty is affected by (1) three different types of audit reports—unqualified (clean), hybrid (with explanatory language about financial stress), and going concern (GCAR)—and (2) audit report disclosures. We provide evidence that audit reports (hybrid and GCAR) and audit report disclosures provide useful information to the market by finding a significant reduction in information uncertainty. Just as important, we find that management discretionary going concern disclosures do not complement or substitute for the reduction in information uncertainty associated with hybrid audit reports and GCARs. We provide evidence that current audit report types and disclosures of financially stressed IPO firms provide information to the market. JEL Classifications: M40; M42; G14. Data Availability: The data used in this study are available from public sources indicated in the paper.

Industry-Average Earnings Management and IPO Pricing

2019 ◽  
Vol 22 (04) ◽  
pp. 1950023
Author(s):  
Joseph R. Rakestraw ◽  
Raman Kumar ◽  
John J. Maher
Keyword(s):  
Earnings Management ◽  
Initial Public Offerings ◽  
Secondary Market ◽  
Share Price ◽  
Partial Adjustment ◽  
Public Offerings ◽  
Initial Return ◽  
Ipo Pricing

We examine the effects of signed industry-average earnings management on the pricing of initial public offerings (IPOs). We posit that the variation in an IPOs earnings management is related to industry-average earnings management and, therefore, provides useful information regarding the IPO valuation. We find that higher industry-average earnings management negatively affects the pre-issuance price update and the initial return of IPOs. Our findings lend support to the partial adjustment phenomenon of IPO pricing which suggests information that influences valuation is partially incorporated in the initial offer price and more fully incorporated in the share price during the first-day of secondary market trading.

Small-Company Initial Public Offerings: The Impact of SEC Registration Form S—18

1986 ◽  
Vol 1 (3) ◽  
pp. 206-221
Author(s):  
James G. Manegold
Keyword(s):  
Initial Public Offerings ◽  
Public Capital ◽  
Securities Market ◽  
Small Companies ◽  
Small Company ◽  
Registration Form ◽  
Additional Risk ◽  
Public Offerings ◽  
Start Up ◽  
The Impact

This paper reports on the impact of SEC registration Form S–18 on the new-issues securities market. Form S–18 was intended as an easier, faster, and less costly alternative for small companies to raise public capital. The findings indicate that Form S–18 offerings were slightly less costly and were processed faster than Form S–1 offerings. They also suggest that Form S–18 has helped smaller, start-up companies go public, that potential investors may face additional risk when purchasing Form S–18 offerings, and that underwriters were sensitive to the added risk.

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