Review of Accounting Studies

, Volume 3, Issue 1, pp 175–208

Are Accruals during Initial Public Offerings Opportunistic?


  • Siew Hong Teoh
    • University of Michigan Business School
  • T. J. Wong
    • Hong Kong University of Science and Technology
  • Gita R. Rao
    • Colonial Management Associates

DOI: 10.1023/A:1009688619882

Cite this article as:
Teoh, S.H., Wong, T.J. & Rao, G.R. Review of Accounting Studies (1998) 3: 175. doi:10.1023/A:1009688619882


We find evidence that initial public offering (IPO) firms, on average, have high positive issue-year earnings and abnormal accruals, followed by poor long-run earnings and negative abnormal accruals. The IPO-year abnormal, and not expected, accruals explain the cross-sectional variation in post-issue earnings and stock returns. The results are robust with respect to alternative abnormal accruals and earnings performance measures. IPO firms adopt more income-increasing depreciation policies when they deviate from similar prior performance same industry non-issuers, and they provide significantly less for uncollectible accounts receivable than their matched non-issuers. The results taken together suggest opportunistic earnings management partially explains the new issues anomaly.

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© Kluwer Academic Publishers 1998