Earnings Management and Long-Run Stock Underperformance of Private Placements

Authors

Steven D. He, San Jose State UniversityFollow
D. Yang, University of Hawaii, Manoa
L. Guan, University of Hawaii, Manoa

Document Type

Article

Publication Date

1-1-2011

Publication Title

Academy of Accounting and Financial Studies Journal

Volume

15

Issue Number

1

First Page

31

Last Page

58

Disciplines

Business

Abstract

The study investigates whether private placement issuers manipulate their earnings around the time of issuance and the effect of earnings management on the long-run stock performance. We find that managers of U.S. private placement issuers tend to engage in income-increasing earnings management in the year prior to the issuance of private placements. We further speculate that earnings management serves as a likely source of investor over-optimism at the time of private placements. To support this speculation, we find evidence suggesting that the income-increasing accounting accruals made at the time of private placements predict the post-issue long-term stock underperformance. The study contributes to the large body of literature on earnings manipulation around the time of securities issuance.

Comments

Copyright © 2011 Allied Academies.

Recommended Citation

Steven D. He, D. Yang, and L. Guan. "Earnings Management and Long-Run Stock Underperformance of Private Placements" Academy of Accounting and Financial Studies Journal 15.1 (2011): 31-58.