Earnings management for newly listed firms
Date Issued
2008
Date
2008
Author(s)
Yu, Chih-Fan
Abstract
This study examines whether newly listed firms engage in earnings management before their listing. The sample includes 499 newly listed firms in the Taiwan Stock Exchange (TSE) market and 744 newly listed firms in the GreTai Securities (GTS) market between 1992 and 2006. This paper uses the cross-sectional modified Jones model to estimate discretionary current accruals as the proxy for earnings management behavior. The study illustrates some potential biases related to the discretionary current accruals in the event year mentioned by Ball and Shivakumar (2007) and examines the fluctuations of individual working capital components. The discretionary current accruals in the event year are influenced by firms’ decision to deploy their working capital level, and this paper assumes the discretionary current accruals in the event year -1 and -2 are more suitable to test if newly listed firms manipulate their earnings. The empirical results are consistent with that newly listed firms do not engage in earnings management before their listing and even report more conditionally conservatively in event year -1 and -2.
Subjects
earnings management
IPO
newly listed
discretionary current accruals
conditional conservatism
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