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Earnings Management and the Long-Run Market Performance of Initial Public Offerings

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  • Siew Hong Teoh

    (University of Michigan,)

  • Ivo Welch

    (University of California, Los Angeles,)

  • T.J. Wong

    (University of Science and Technology, Hong Kong)

Abstract

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.

Suggested Citation

  • Siew Hong Teoh & Ivo Welch & T.J. Wong, 1998. "Earnings Management and the Long-Run Market Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 53(6), pages 1935-1974, December.
  • Handle: RePEc:bla:jfinan:v:53:y:1998:i:6:p:1935-1974
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