Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5084417 | International Review of Financial Analysis | 2017 | 38 Pages |
Abstract
This study investigates the dual roles of institutional investors in earnings management during initial public offerings (IPOs). Research suggests that institutional investors play a monitoring role in the corporate governance of firms by mitigating earnings management to reduce agency problems. However, institutional investors have incentives to opportunistically maximize their wealth by manipulating earnings when firms engage in IPOs. Results suggest that institutional investors facilitate accrual-based earnings management before IPOs but restrain earnings management after their issuance. We also find that firms with high institutional ownership experience superior post-IPO stock returns and operating performance, thereby suggesting that the capital market positively prices the monitoring function of institutional investors after IPOs, and the performance of these firms is improved. Our results are robust to controlling the endogeneity problem of institutional investors and further identifying active institutional investors.
Related Topics
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Authors
Huai-Chun Lo, Ruei-Shian Wu, Qian Long Kweh,