Review of Accounting Studies

, Volume 3, Issue 1–2, pp 175–208 | Cite as

Are Accruals during Initial Public Offerings Opportunistic?

  • Siew Hong Teoh
  • T. J. Wong
  • Gita R. Rao


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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Copyright information

© Kluwer Academic Publishers 1998

Authors and Affiliations

  • Siew Hong Teoh
    • 1
  • T. J. Wong
    • 2
  • Gita R. Rao
    • 3
  1. 1.University of Michigan Business SchoolAnn Arbor
  2. 2.Hong Kong University of Science and TechnologyHong Konh
  3. 3.Colonial Management AssociatesHong Kong

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