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Can corporate governance discipline opportunistic earnings management during IPO process?

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  • Hui-wen Tang

Abstract

This study investigates whether corporate governance can discipline opportunistic earnings management during IPO process and thus enhance long-run stock returns. Using a sample of IPOs in Taiwan, the study shows that there is a negative relation between pre-IPO discretionary current accruals (DCAs) and post-issue stock performance. These findings suggest that though corporate managers might mislead the market by accrual management during IPO process, such as accelerating the recognition of revenues or deferring expenses, issuers cannot always manipulate accounting discretion to sustain their earnings. Most importantly, the results of the study demonstrate that corporate governance can deter the abuse of accounting discretion during IPO process, and thus reduce potential losses of investors who were temporarily deceived by opportunistic earnings management. Notably, in family-controlled firms, increasing institutional ownership or the presence of venture capitalists will aggravate stock reversal due to earnings management, which is different from the supervising effect on non-family controlled firms.

Suggested Citation

  • Hui-wen Tang, 2012. "Can corporate governance discipline opportunistic earnings management during IPO process?," International Journal of Revenue Management, Inderscience Enterprises Ltd, vol. 6(3/4), pages 199-220.
    • Handle: RePEc:ids:ijrevm:v:6:y:2012:i:3/4:p:199-220
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    Cited by:

    1. Hui-Wen Tang & Chong-Chuo Chang, 2015. "Does corporate governance affect the relationship between earnings management and firm performance? An endogenous switching regression model," Review of Quantitative Finance and Accounting, Springer, vol. 45(1), pages 33-58, July.
    2. Boachie, Christopher & Mensah, Emmanuel, 2022. "The effect of earnings management on firm performance: The moderating role of corporate governance quality," International Review of Financial Analysis, Elsevier, vol. 83(C).
    3. Emmanuel Mensah & Peter Ackah & Mamdouh Abdulaziz Saleh Al-Faryan, 2024. "Firms growth opportunities and accruals earnings management nexus: does corporate and national governance systems play a role?," SN Business & Economics, Springer, vol. 4(10), pages 1-41, October.

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