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Earnings Management As An Explanation Of The Equity Issue Puzzle


  • María Jesús Pastor

    () (Universidad de Alicante)

  • Francisco Poveda

    (Universidad de Alicante)


The poor stock price performance of firms that raise capital through seasoned equity offerings is one of the recent puzzles in financial literature. In this study we investigate whether pre-issue earnings management can explain these results for rights issues in Spain. Consistent with this explanation, we notice that firms¿ issuing rights make use of discretionary accruals to report higher earnings prior to the offering. Most interestingly, the decrease in discretionary accruals the years following the offering explains the underperformance in stock returns.

Suggested Citation

  • María Jesús Pastor & Francisco Poveda, 2005. "Earnings Management As An Explanation Of The Equity Issue Puzzle," Working Papers. Serie AD 2005-04, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasad:2005-04

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    References listed on IDEAS

    1. Jun Cai, 1998. "The long-run performance following Japanese rights issues," Applied Financial Economics, Taylor & Francis Journals, vol. 8(4), pages 419-434.
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    18. Francisco Poveda, 2003. "Nuevo Enfoque En La Estimación De Los Ajustes Por Devengo Anormales: Un Modelo Desagregado," Working Papers. Serie EC 2003-22, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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    Cited by:

    1. Mohamed Faker Klibi & Hamadi Matoussi, 2007. "Gestion Des Resultats Et Performance Comptable Et Boursiere Des Entreprises Émettrices De Nouvelles Actions," Post-Print halshs-00534752, HAL.

    More about this item


    Corporate Finance; Seasoned Equity Offerings; Earnings Management; Accounting Accruals;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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