Earnings management of initial public offering firms: evidence from regulation changes in China


  • An earlier version of this paper was presented at the Airlangga Accounting International Conference 2012, the 19th Conference on the Theories and Practices of Securities and Financial Markets, 2012 Spring Meeting of the Japan Association for Applied Economics, and the Applied Economics Workshop in Kyushu University. We would like to thank Alex P. Tang, Nobuaki Hori, Yusuke Kinari, Toshihiro Umezawa, and the anonymous reviewer for their comments and suggestions. This paper was financially supported by the JSPS Grants-in-Aid for Scientific Research.


Discretionary current accruals of Chinese initial public offering (IPO) firms decreased after the abolition of fixed-price offering systems that directly linked offering price to reported earnings. Results suggest IPO firms that decrease managerial ownership manage earnings upward during the fixed-price offering period, but this relationship disappeared after the introduction of a book-building system. We also find that bank debt is negatively related to discretionary current accruals during the fixed-price offering period, but no relation exists for the book-building period. Leverage has a significant positive relationship with earnings management. However, this finding is potentially attributable to nonoffering price objectives or endogeneity biases.