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Related Party Transactions : A Second Source for Earnings Management – Evidence from Chinese IPOs
| Content Provider | Semantic Scholar |
|---|---|
| Author | Cheng, Peng |
| Copyright Year | 2007 |
| Abstract | Prior literature has identified IPO firms abuse the use of discretionary accruals before the IPO for the purpose of raising the IPO offering price and others. This study examines earnings management behaviors of Chinese IPOs in the pre-IPO period. We argue that there are two ways for IPO firms to manipulate pre-IPO reported earnings: one is to manipulate discretionary accruals, and the other is to structure artificial operating RPTs (non-loan) with controlling shareholders to boost sales and/or profits. Besides some evidence of accrual-based earnings management in the pre-IPO period, we also find that controlling shareholders structure a large percentage of operating RPTs with IPO firms in the pre-IPO year and the IPO year, which are positively associated with the operating performance of IPO firms. In the post-IPO period, controlling shareholders discontinue these RPT-based earnings management practices, so that the positive relation between operating performance of IPO firms and the size of operating RPTs disappears. We find that long-run IPO stock performance is significantly associated with the change in operating RPTs from before to after the IPO (at 1% significance level). IPOs reporting a decline in operating RPTs significantly underperform their industry peers. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://efmaefm.org/0EFMAMEETINGS/EFMA%20ANNUAL%20MEETINGS/2007-Austria/papers/0311.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
