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Is Window-Dressing around Going Public Beneficial? Evidence from Poland

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  • Joanna Lizińska

    (Department of Corporate Finance, Poznań University of Economics and Business, al. Niepodległości 10, 61-875 Poznań, Poland)

  • Leszek Czapiewski

    (Department of Corporate Finance, Poznań University of Economics and Business, al. Niepodległości 10, 61-875 Poznań, Poland)

Abstract

The informativeness of financial reports has been of a great importance to both investors and academics. Earnings are crucial for evaluating future prospects and determining company value, especially around milestone events such as initial public offerings (IPO). If investors are misled by manipulated earnings, they could pay too high a price and suffer losses in the long-term when prices adjust to real value. We provide new evidence on the relationship between earnings management and the long-term performance of IPOs as we test the issue with a methodology that has not been applied so far for issues in Poland. We use a set of proxies of earnings management and test the long-term IPO performance under several factor models (CAPM, and three extensions of the Fama-French model). Aggressive IPOs perform very poorly later and earn severe negative stock returns up to three years after going public. The difference in returns in accrual quantiles is statistically significant in almost half of methodology settings. The results seem to suggest that investors might not be able to discount pre-IPO abnormal accruals and could be overoptimistic. Once the true earnings performance is revealed over time, the market makes downward price corrections.

Suggested Citation

  • Joanna Lizińska & Leszek Czapiewski, 2019. "Is Window-Dressing around Going Public Beneficial? Evidence from Poland," JRFM, MDPI, vol. 12(1), pages 1-16, January.
    • Handle: RePEc:gam:jjrfmx:v:12:y:2019:i:1:p:18-:d:199509
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    References listed on IDEAS

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    1. Tomasz Sosnowski, 2022. "Persistence of pre-IPO earnings of new companies from CEE stock markets," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 17(2), pages 415-434, June.
    2. Shigeyuki Hamori, 2020. "Empirical Finance," JRFM, MDPI, vol. 13(1), pages 1-3, January.
    3. Joanna Lizińska & Leszek Czapiewski, 2023. "Earnings Management amid the COVID-19 Financial Crisis: The Experience of Poland," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 93-112.

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