This study investigates the earnings performance of 418 initial public offerings （IPOs） listed on the stock exchange of Hong Kong. By analyzing several profitability measures of these 1PO companies from the third ye...This study investigates the earnings performance of 418 initial public offerings （IPOs） listed on the stock exchange of Hong Kong. By analyzing several profitability measures of these 1PO companies from the third year prior to listing up to the fifth year post-listing, it is found that IPO companies＇ operating performances as a whole peak in the year of listing or the year preceding the listing, but exhibit a fall in post-issue profitability with the decline being most pronounced in the first financial year following the year in which the listing take place. Over 30% of these IPOs suffer a loss three years after the offerings. Deterioration of post-issue performance is found to be more severe for smaller finns, highly-geared companies, fast-growing enterprises, companies with lower ownership retention by original shareholders, and companies which have managed earnings upwards at the time of listing. These observations are consistent with the higher agency costs when firms go public and that managers have timed the issue at the peak of the companies＇ long-run performance. Further investigation confirms that IPO companies in general make use of income-increasing accruals to manage their earnings upwards in the year when they go public. The reversal of the accruals in post-issue years further exaggerates the decline in their profitability.展开更多
文摘This study investigates the earnings performance of 418 initial public offerings （IPOs） listed on the stock exchange of Hong Kong. By analyzing several profitability measures of these 1PO companies from the third year prior to listing up to the fifth year post-listing, it is found that IPO companies＇ operating performances as a whole peak in the year of listing or the year preceding the listing, but exhibit a fall in post-issue profitability with the decline being most pronounced in the first financial year following the year in which the listing take place. Over 30% of these IPOs suffer a loss three years after the offerings. Deterioration of post-issue performance is found to be more severe for smaller finns, highly-geared companies, fast-growing enterprises, companies with lower ownership retention by original shareholders, and companies which have managed earnings upwards at the time of listing. These observations are consistent with the higher agency costs when firms go public and that managers have timed the issue at the peak of the companies＇ long-run performance. Further investigation confirms that IPO companies in general make use of income-increasing accruals to manage their earnings upwards in the year when they go public. The reversal of the accruals in post-issue years further exaggerates the decline in their profitability.
