A Comparative Analysis of Real and Accrual Earnings Management around Initial Public Offerings under Different Regulatory Environments

Abstract

While earnings management around IPOs has been researched in a number of settings, there has been a relative absence of work that analyses the impact of the regulatory environment on such activities. We find that the regulatory environment does impact the real and accrual earnings management activities of IPO firms. Our results show that IPO firms listing on the lightly regulated UK Alternative Investment Market (AIM) have higher (lower) levels of accrual based and sales based (discretionary expenses based) earnings management around the IPO than firms listing on the more heavily regulated Main market in the UK.

Keywords: Initial Public Offerings, earnings management, regulatory environment, accounting choices