Abstract

http://ssrn.com/abstract=2012560
 
 

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Role of Underwriters in Restraining Earnings Management in Initial Public Offerings


Hei Wai Lee


University of Michigan at Dearborn - School of Management

Yan Alice Xie


University of Michigan at Dearborn

Jian Zhou


University of Hawaii at Manoa

September 9, 2011

Journal of Applied Business Research, Forthcoming

Abstract:     
We investigate the relationship between underwriter reputation and earnings management of IPO firms over the period of 1991-2005. We find that IPO firms engage in less earnings management if they are underwritten by prestigious investment bankers. Furthermore, the role of prestigious underwriters in restraining earnings management of IPO issuers do not change during the Internet Bubble period or after the passage of the Sarbanes-Oxley Act (SOX). The findings support the certification role of underwriters in the IPO process.

We also document that firms going public in the post-SOX period engage in less earnings management compared to firms going public in the pre-SOX period. Further findings suggest that the changing objectives of venture capitalists may explain the reduction in the level of earnings management of IPO firms following the passage of SOX.

Number of Pages in PDF File: 25

Keywords: Earnings management, Underwriter reputation, IPO firms, Internet bubble, Sarbanes-Oxley Act

JEL Classification: G24, M41

Accepted Paper Series


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Date posted: February 29, 2012  

Suggested Citation

Lee, Hei Wai and Xie, Yan Alice and Zhou, Jian, Role of Underwriters in Restraining Earnings Management in Initial Public Offerings (September 9, 2011). Journal of Applied Business Research, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2012560

Contact Information

Hei Wai Lee
University of Michigan at Dearborn - School of Management ( email )
4901 Evergreen Road
Dearborn, MI 48128-1491
United States
313-593-5524 (Phone)
313-593-5636 (Fax)
Yan Alice Xie (Contact Author)
University of Michigan at Dearborn ( email )
Dearborn, MI
United States
Jian Zhou
University of Hawaii at Manoa ( email )
School of Accountancy, Shidler College of Business
University of Hawaii at Manoa, 2404 Maile Way
Honolulu, HI 96822
United States
808-956-7608 (Phone)
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