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Earnings Management And The Post Issue Underperformance Of Seasoned Equity Offerings
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Book Synopsis Earnings Management and The Post-Issue Underperformance of Seasoned Equity Offerings by : Siew Hong Teoh, Ivo Welch, T.J. Wong
Download or read book Earnings Management and The Post-Issue Underperformance of Seasoned Equity Offerings written by Siew Hong Teoh, Ivo Welch, T.J. Wong and published by . This book was released on 1995 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Earnings Management and the Post-Issue Underperformance of Seasoned Equity Offerings by : Siew Hong Teoh
Download or read book Earnings Management and the Post-Issue Underperformance of Seasoned Equity Offerings written by Siew Hong Teoh and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Loughran and Ritter (1995) document that firms issuing seasoned equity offerings (SEOs) severely underperform the stock market for three to five years after the offering. Our paper examines the hypothesis that SEO investors are too optimistic because they naively extrapolate earnings trends without fully adjusting for observable discretionary managerial reporting choices. We find that aggressive firms, which report high pre-SEO earnings at the expense of post-SEO earnings by taking high discretionary pre-issue accruals, subsequently performed worse (abnormal stock returns and industry-adjusted net income). Aggressive quartile firms earned a highly significant-48% four-year cumulative abnormal return; conservative quartile firms earned an insignificant-7% four-year cumulative abnormal return. In contrast with discretionary accruals, pre-issue non-discretionary accruals did not predict post SEO returns. This paper is also available at the following web address: ftp://next.agsm.ucla.edu/academic.finance/mngseo.ps ftp://next.agsm.ucla.edu/academic.finance/mngseo.hp If you have any questions concerning downloading, please contact Professor Teoh.
Book Synopsis Earnings Management and the Post-Issue Underperformance in Seasoned Equity Offerings by : Siew Hong Teoh
Download or read book Earnings Management and the Post-Issue Underperformance in Seasoned Equity Offerings written by Siew Hong Teoh and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Loughran and Ritter (1995) document that firms issuing seasoned equity offerings (SEOs) severely underperform the stock market for three to five years after the offering. Our paper examines the hypothesis that SEO investors are too optimistic because they naively extrapolate earnings trends without fully adjusting for observable discretionary managerial reporting choices. We find that aggressive firms, which report high pre-SEO earnings at the expense of post-SEO earnings by taking high discretionary pre-issue accruals, subsequently perform worse (abnormal stock returns and industry-adjusted net income). Aggressive quartile firms earned a highly significant-50% four-year cumulative abnormal return; conservative quartile firms earn an insignificant-7% four-year cumulative abnormal return. In contrast with discretionary accruals, pre-issue non-discretionary accruals did not predict post-SEO returns.
Book Synopsis Earnings Management and the Post-issue Underperformance of Seasoned Equity Offerings by : Siew Hong Teoh
Download or read book Earnings Management and the Post-issue Underperformance of Seasoned Equity Offerings written by Siew Hong Teoh and published by . This book was released on 1995 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Earnings Around Seasoned Equity Offerings by : Srinivasan Rangan
Download or read book Earnings Around Seasoned Equity Offerings written by Srinivasan Rangan and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper documents significant earnings management around seasoned equity offerings. I find that discretionary accruals are positive and significant in the quarter preceding, the quarter of, and the quarter following the announcement of the offering. Additional tests that control for the endogeneity of the decision to issue equity confirm that earnings are managed in direct response to the decision to issue equity in the quarter preceding the announcement of the offering. Consistent with recent research, I find that offering firms experience poor stock price and earnings performance in the three year period subsequent to the offering. I then show that (i) the subsequent earnings declines can be predicted using the magnitude of accruals management at the time of the offering and (ii) a portion of the post-offering stock price declines are related to the predictable earnings declines. My results therefore suggest that at least a portion of the anomalous post-offering stock performance reflects the stock market's inability to unravel accruals management around the time of the offering. Data Availability: The list of firms that made seasoned offerings and the offering announcement dates are available from the author. The rest of the data used in this study are publicly available from sources identified in the paper.
Book Synopsis Earnings Management and the Underperformance of Seasoned Equity Offerings by : Siew Hong Teoh
Download or read book Earnings Management and the Underperformance of Seasoned Equity Offerings written by Siew Hong Teoh and published by . This book was released on 1997 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis ACCOUNTING & STOCK PERFORMANCE by : Liangyi Ouyang
Download or read book ACCOUNTING & STOCK PERFORMANCE written by Liangyi Ouyang and published by Open Dissertation Press. This book was released on 2017-01-27 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation, "Accounting and Stock Performance of Initial Public Offerings and Seasoned Equity Offerings: Evidence in China" by Liangyi, Ouyang, 歐陽良宜, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Abstract of the thesis entitled Accounting and Stock Performance of Initial Public Offerings and Seasoned Equity Offerings: Evidence in China Submitted By OUYANG Liangyi For the Degree of Doctor of Philosophy at the University of Hong Kong in August 2004 Although it has a short history, the China stock market developed very fast in the past decade. Stock is now a primary investment instrument for Chinese. This research studies the long-term accounting and stock performance of initial public offerings and seasoned equity offerings in China. We find that operating performance of initial public offerings and seasoned equity offerings in China experience substantial deterioration in the post-issue period. Issuers typically have significant higher earnings and sales revenue than their industry peers before year 0. However, their advantages shrink to nothing in a short period. Extraordinarily high current accruals are reported in year 0, which consist of a large discretionary component after broken down by a Jones (1991) model. We attribute the unusual changes in accruals and operating performance to be a result of earnings management. Moreover, we find that both absolute and discretionary current accruals in year 0 are powerful in predicting changes of income and cash flow in the following three years. This finding further strengthens the hypothesis that managers dress up their earnings to meet the earnings threshold by recording aggressive accruals, which cause earnings reverse in the aftermarket period. Investors are surprised at the poor earnings. Earnings announcement effects, measured by 3-, 9- and 21-day market-adjusted abnormal returns are significantly negative in post-issue period. We also find stock offerings have negative buy-and-hold abnormal ii returns in a three-year window. Both IPOs and SEOs have around 30% less returns than size-matched non-issuers. However, when the matching standard changes to be size and book-to-market ratio, the abnormal returns are reduced by half and not significant for SEOs. We also apply the Fama and French (1993) model to monthly trading data of issuers. The result shows that the time-weighted abnormal return is not significant. We consider this difference to be a result of the time-clustering and cyclical pattern of stock issues in China. Due to high volumes of stock issues in periods of high past returns and low volumes in periods of low past returns, a time-weighted method may not find underperformance while an equal-weighted method may. We explain the negative cross-sectional abnormal returns as results of investor overoptimism and information asymmetry. Investors have insufficient information about issuers and overestimate issuers' future earnings. Along with new information released in earnings reports, they gradually downgrade their valuation, thus contributing to the negative cross-sectional returns. We find that the three-year buy-and-hold abnormal returns on issuers are significantly correlated with changes in net income during the same period, which is also supportive of the investor overoptimism hypothesis. This research contributes to the literature by providing new evidence from China, a major emerging economy with high growth. We suggest that earnings management could be stimulated by explicit earnings requirement and exacerbated by inve
Book Synopsis Seasoned Capital Offerings by : Subba Reddy Yarram
Download or read book Seasoned Capital Offerings written by Subba Reddy Yarram and published by . This book was released on 2004 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: The present study examines the behavior of seasoned offering firms surrounding their issue period for the capital issues offered during the period 1995-96 to 1998-99. Analysis of earnings management practices of firms though show apparent differences in terms of discretionary current accruals between issuers and non-issuers as well as between debt issuers and equity issuers, these differences are not statistically significant. This finding is consistent with Korean findings of Yoon and Miller (2002). Perhaps earnings management is all pervasive and is not just confined to seasoned offering firms in emerging markets unlike the markets in developed countries. Analysis of adjusted operating performance of firms show important differences for equity offering and debt offering seasoned firms. Similarly earnings management appears to have negative impact on the immediate post-issue operating performance while in the long-term it appears to have a positive impact for equity issuers. The latter result contradicts the findings of Rangan (1998) and Teoh et, al (1998). Analysis of influence of earnings management on stock market performance of seasoned offerings shows insignificant role of discretionary current accruals in explaining post-issue stock returns. Similarly analysis of determinants of SEO decision shows that run up in adjusted operating performance prior to offer has no impact - thus contradicting the view that seasoned offerings are timed to meet better operating performance - and that information asymmetry has positive influence on the decision to issue seasoned equity.
Book Synopsis Do Firms Mislead Investors by Overstating Earnings Before Seasoned Equity Offerings? by : Lakshmanan Shivakumar
Download or read book Do Firms Mislead Investors by Overstating Earnings Before Seasoned Equity Offerings? written by Lakshmanan Shivakumar and published by . This book was released on 2002 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: Rangan (1998) and Teoh, et al. (1998) argue the failure on part of investors to identify pre-offering earnings management as a cause for the post-offering stock underperformance. This paper re-examines their hypothesis. Like Rangan and Teoh et al., I find evidence of earnings overstatements by issuers, but show their conclusions on investor naivete to be influenced by skewness in long-run returns data. Far from being naive, investors appear to infer earnings management and rationally undo its effects at offering announcements. The paper shows this to be consistent with an extension of the Myers-Majluf model, which endogenizes asymmetric information between managers and investors around equity offerings. I conclude that earnings management by issuers may not be intended to mislead investors, but may merely reflect their rational response to anticipated market behavior at offering announcements.
Book Synopsis Post Offering Earnings Performance of Firms that Issue Seasoned Equity by : Hei Wai Lee
Download or read book Post Offering Earnings Performance of Firms that Issue Seasoned Equity written by Hei Wai Lee and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study finds that growth firms experience significant unanticipated deterioration in their earnings performance following their seasoned equity offerings (SEO), but mature firms do not share the same negative experience. This finding is consistent with the findings of long run post offering stock price underperformance documented in the literature. However, it is inconsistent with the findings of a weak positive impact of growth opportunities on the stock price reaction to the SEO announcement. The negative role of growth opportunities also contradicts the predictions of signaling models that growth potential of the issuing firm has a positive impact on the information content of the SEO. Overall, the findings in this study are consistent with the general implication of the overvaluation hypothesis that managers issue equity securities when they know their firm is not as valuable as what the market believes.
Book Synopsis Earnings manegement and the post-issue underperformance of seasoned equity offerings by : Siew Hong Teoh
Download or read book Earnings manegement and the post-issue underperformance of seasoned equity offerings written by Siew Hong Teoh and published by . This book was released on 1995 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Effect of the Need for Subsequent Seasoned Equity Offerings on Earnings Management Motivation by : Moshe Hagigi
Download or read book The Effect of the Need for Subsequent Seasoned Equity Offerings on Earnings Management Motivation written by Moshe Hagigi and published by . This book was released on 2018 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: Several previous studies have discussed the differential market reaction to Seasoned Equity Offerings (SEOs) which were issued at different frequencies and in different sequences. We explore an additional aspect to this issue. We have attempted to study the impact of the need for subsequent SEOs on the managerial motivation to manage earnings. We hypothesize that those firms with less of a need for subsequent equity issuances are more likely to engage in “income-increasing” earnings management (EM) prior to their equity issuances. Conversely, equity issuers with more of a need for subsequent equity issuances would be more concerned about the potential impact of current EM on their future reported earnings and therefore would be less likely to manage earnings. Using data from U.S. companies during the period 1984-2014, we find that the level of income-increasing abnormal accruals around equity issuance is negatively related to their need for subsequent equity issuance. These results are consistent with the assumption that firms which have financing need plan not only for the current equity issuance but also for issuances in the near future.
Book Synopsis Earnings Management Around Seasoned Equity Offerings by : Lakshmanan Shivakumar
Download or read book Earnings Management Around Seasoned Equity Offerings written by Lakshmanan Shivakumar and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines earnings management around seasoned equity offerings. Consistent with managers managing earnings, I find offering firms to have temporarily high earnings around the offering. The temporary increase in earnings around the offering appears to be primarily driven by abnormally high accruals in the period. By relating my estimates of abnormal accruals to the incentives and abilities of managers to manage earnings, I show that these abnormal accruals result from earnings management. Further, this analysis shows that the ability to manage earnings is constraining mainly for managers with high incentives to manage earnings. Also, I argue that the announcement of an equity offering signals earnings management in prior quarters to the market, which would result in a negative price reaction to the announcement. Consistent with this argument, I show that the earnings management before an offering announcement partly explains the negative market reaction to the announcement.
Book Synopsis Causes or Consequences? Earnings Management Around Seasoned Equity Offerings by : Jie Chen
Download or read book Causes or Consequences? Earnings Management Around Seasoned Equity Offerings written by Jie Chen and published by . This book was released on 2010 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior studies find that earnings management around seasoned equity offerings is negatively related to subsequent stock performance and attribute the finding to the issuing firms' use of inflated earnings to boost stock prices. We show in this paper that earnings management is not significantly related to concurrent abnormal returns. Rather, it is significantly positively related to prior abnormal returns. This suggests that, rather than a cause of stock price run-up, earnings management is likely a consequence of the stock overvaluation prior to the offerings, supporting the agency theory of overvalued equity (Jensen, 2005). We also show that when examining the relation between earnings management and subsequent stock performance, one has to be careful with the appropriate window for measuring earnings management.
Book Synopsis Industry-specific Discretionary Accruals and Earnings Management by : Atif Ikram
Download or read book Industry-specific Discretionary Accruals and Earnings Management written by Atif Ikram and published by . This book was released on 2011 with total page 84 pages. Available in PDF, EPUB and Kindle. Book excerpt: Chapter 3 extends the decomposition to examine the role of firm-specific and industry-specific discretionary accruals in explaining the subsequent market underperformance and negative analysts' forecast errors documented for firms issuing equity. I examine the post-issue market returns and analysts' forecast errors for a sample of seasoned equity issues between 1975 and 2004 and find that offering-year firm-specific discretionary accruals can partially explain these anomalous capital market outcomes. Nonetheless, I find this predictive power of firm-specific accruals to be more pronounced for issues that occur during 1975 - 1989 compared to issues taking place between 1990 and 2004. Additionally, I find no evidence that investors and analysts are more overoptimistic about the prospects of issuers that have both high firm-specific and industry-specific discretionary accruals (compared to firms with high discretionary accruals in general). The results indicate no role for industry-specific discretionary accruals in explaining overoptimistic expectations from seasoned equity issues and suggest the importance of firm-specific factors in inducing earnings manipulation surrounding equity issues.
Book Synopsis Earnings Management and the Long-Term Market Performance of Initial Public Offerings by : Siew Hong Teoh
Download or read book Earnings Management and the Long-Term Market Performance of Initial Public Offerings written by Siew Hong Teoh and published by . This book was released on 1999 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine empirically whether earnings management as measured by discretionary accounting accruals explain post-issue stock return underperformance for IPO firms. We find that high discretionary accounting accruals are related to negative abnormal stock returns with high statistical significance. For example, a trading strategy of a short position in IPO firms with high discretionary accruals and a long position in IPOs with low discretionary accruals result in a mean (median) excess return of 102% (83.5%) in the 36-month period beginning after the first fiscal year end of the IPO. The evidence is consistent with Ritter's [1991] conjecture that investors are systematically overoptimistic about the growth prospects of IPO firms. The high discretionary accounting accruals seem to be associated with initial overoptimism of investors with subsequent revelations about the appropriateness of the accruals causing a subsequent downward revision in stock prices.
Book Synopsis Earnings Management and the Performance of UK Seasoned Equity Offerings by : Abdullah Muhammad Iqbal
Download or read book Earnings Management and the Performance of UK Seasoned Equity Offerings written by Abdullah Muhammad Iqbal and published by . This book was released on 2002 with total page 361 pages. Available in PDF, EPUB and Kindle. Book excerpt:
