Siew Hong Teoh (University of Michigan,) Ivo Welch (University of California, Los Angeles,) T.J. Wong (University of Science and Technology, Hong Kong)
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Issuers of initial public offerings (IPOs) can report earnings in excess of cash flows by taking positive accruals. This paper provides evidence that issuers with unusually high accruals in the IPO year experience poor stock return performance in the three years thereafter. IPO issuers in the most "aggressive" quartile of earnings managers have a three-year aftermarket stock return of approximately 20 percent less than IPO issuers in the most "conservative" quartile. They also issue about 20 percent fewer seasoned equity offerings. These differences are statistically and economically significant in a variety of specifications. Copyright The American Finance Association 1998.
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Hirshleifer, David & Hou, Kewei & Teoh, Siew Hong, 2006.
"The Accrual Anomaly: Risk or Mispricing?,"
Working Paper Series
2006-3, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
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