Going Public: The Role of Accounting and Shareholder Value in Making Sense of an IPO

Management Accounting Research, Forthcoming

Posted: 5 Jun 2012

See all articles by Kalle Kraus

Kalle Kraus

Stockholm School of Economics

Torkel Strömsten

Stockholm School of Economics

Date Written: June 5, 2012

Abstract

This study draws on interviews with corporate executives from four companies that went public and financial analysts involved in evaluating these firms. Top managers in all companies became more focused on short-term financial results than they had been when the companies were private. We contribute to existing research by analyzing, empirically and theoretically, the processes producing this focus. Following an IPO process offered a unique insight into a gradual increase in emphasis on accounting metrics through the outcomes of guided and restricted sensemaking. When preparing for the IPO, guided sensemaking produced an IPO prospectus incorporating quantitative and qualitative commitments. Quantitative commitments were based on accounting metrics, such as earnings per share and profit margin, which provided an important foundation for the financial focus. These commitments became the anchor for subsequent sensegiving and restricted sensemaking when the companies were listed. With the financial analysts as the social anchors, the richer communication in the prospectus was narrowed down to comprise an exclusive focus on the quantitative accounting commitments. The long-term accounting commitments in the prospectus were transformed into short-term targets that must be met when the financial measures served as specific and concrete extracted cues to quickly provide structure to the uncertain situation, gain the financial analysts’ confidence and sustain action. One year after the IPO, the financial focus was taken for granted and managers had accepted the rules of the game.

Keywords: accounting metrics, sensemaking, sensegiving, financial focus, capital market pressure, initial public offering, financial analysts, top management, shareholder value, socialisation

JEL Classification: M4

Suggested Citation

Kraus, Kalle and Strömsten, Torkel, Going Public: The Role of Accounting and Shareholder Value in Making Sense of an IPO (June 5, 2012). Management Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2078040

Kalle Kraus (Contact Author)

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Torkel Strömsten

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

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