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Industry Peer Firms' Earnings Quality and IPO Underpricing
Author(s) -
Yu Ji,
Tuo Ling,
Wu Da
Publication year - 2019
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.22366
Subject(s) - initial public offering , business , earnings , market capitalization , earnings quality , information asymmetry , quality (philosophy) , capitalization , accounting , monetary economics , finance , stock market , economics , paleontology , philosophy , linguistics , accrual , horse , epistemology , biology
We investigate the relation between peer firms' earnings quality and initial public offering (IPO) underpricing. By examining 3,711 IPOs from 1976 to 2013, we find that peer firms' earnings quality is negatively associated with IPO underpricing after controlling for IPO firm earnings quality and other attributes. This study also finds that comparable peer firms (with a similar market capitalization in the same industry) play a more important role in impacting IPO underpricing than influential peer firms (with the highest market capitalization in the same industry). We further provide evidence that the peer firms' earnings quality effect is attenuated after the Sarbanes‐Oxley Act of 2002. Our results suggest that information from peer firms in the same industry is beneficial for investors to assess new IPO firms and is associated with less information asymmetry than newer IPOs. These results provide policy, practical, and research implications. © 2019 Wiley Periodicals, Inc.