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Underwriter reputation, earnings management and the long‐run performance of initial public offerings
Author(s) -
Chang ShaoChi,
Chung TsaiYen,
Lin WenChun
Publication year - 2010
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2009.00329.x
Subject(s) - underwriting , initial public offering , reputation , extant taxon , business , earnings , earnings management , limiting , accounting , monetary economics , finance , economics , mechanical engineering , evolutionary biology , engineering , biology , social science , sociology
Abstract This study contributes to the extant literature on the nature of earnings management surrounding initial public offerings (IPOs) by investigating the role of underwriter reputation. We argue that prestigious underwriters will protect their reputation by carefully monitoring and certifying financial information on IPO firms, thereby limiting any potential earnings manipulation. As a result, those IPO firms that are associated with more prestigious underwriters are likely to exhibit substantially less‐aggressive earnings management. Conversely, we find the existence of a negative relationship between earnings management and the post‐offer performance of an IPO firm’s stocks only for those firms associated with less‐prestigious underwriters.