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Earnings Management and the Pricing of Initial Public Offerings

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Author Info

  • Kyoko Nagata

    ()
    (Graduate School of Decision Science and Technology, Tokyo Institute of Technology, 2-12-1 O-okayama, Meguro-ku, Tokyo, Japan)

  • Toyohiko Hachiya

    ()
    (Graduate School of Decision Science and Technology, Tokyo Institute of Technology, 2-12-1 O-okayama, Meguro-ku, Tokyo, Japan)

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    Abstract

    This study investigates whether the extent of earnings management has any impact on offer price in initial public offering (IPO). Using a sample of 581 JASDAQ IPO firms, we find that offer price reflects earnings management to some extent. Firms with conservative earnings management tend to have higher offer prices, and firms managing earnings aggressively tend to be discounted when they fail to exhibit smooth earnings growth. These results are consistent with the hypothesis that underwriters adjust for the effect of earnings management to appropriately pricing the issues. Overall, our evidence could lead to another explanation for IPO underpricing.

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

    Volume (Year): 10 (2007)
    Issue (Month): 04 ()
    Pages: 541-559

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    Handle: RePEc:wsi:rpbfmp:v:10:y:2007:i:04:p:541-559

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    Web page: http://www.worldscinet.com/rpbfmp/rpbfmp.shtml

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    Related research

    Keywords: Initial public offerings; earnings management; consecutive earnings increases; underpricing;

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    Cited by:
    1. Kenneth Shaw, 2012. "CEO incentives and the cost of debt," Review of Quantitative Finance and Accounting, Springer, vol. 38(3), pages 323-346, April.

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