Real Earnings Management (REM) and Accrual Earnings Management (AEM) Around Seasoned Equity Offerings (SEOs) in Australia and Subsequent Operating Earnings Performance

65 Pages Posted: 17 Jan 2013

See all articles by Darren Henry

Darren Henry

La Trobe University - Department of Economics and Finance; Financial Research Network (FIRN)

Md. Hamid Ullah Bhuiyan

La Trobe University - School of Economics and Finance

Date Written: January 17, 2013

Abstract

The paper examines the existence of real earnings management (REM) and accrual earnings management (AEM) around seasoned equity offerings (SEOs) undertaken by Australian firms. We also investigate the subsequent operating earnings performance of the SEO firms that engaged in earnings manipulation and undertake SEOs. Prior studies document the presence of earnings management using univariate tests; however, we provide the first evidence employing both univariate and multivariate tests of the existence and consequences of REM and AEM around the SEOs. We find that managers of Australian SEO firms tend to engage in REM and AEM in the SEO-years, and earnings management activity is greater in these years relative to non-SEO firms and in comparison to the non-issuing years of SEO firms. In addition, consistent with prior evidence, we find that SEO firms performs substantially negatively in the post-SEO period, and SEO firms that engaged in REM and/or AEM underperform significantly those that don’t in the post-offering period. However, we document a non-linear earnings management effect, with SEO firms that engaged in greater levels of REM and undertake SEOs having significantly higher subsequent operating performance.

Keywords: Seasoned equity offerings (SEOs), Real earnings management (REM), Accrual earnings management (AEM), Subsequent operating performance

JEL Classification: G32, M41

Suggested Citation

Henry, Darren and Bhuiyan, Md. Hamid Ullah, Real Earnings Management (REM) and Accrual Earnings Management (AEM) Around Seasoned Equity Offerings (SEOs) in Australia and Subsequent Operating Earnings Performance (January 17, 2013). 2013 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=2201973 or http://dx.doi.org/10.2139/ssrn.2201973

Darren Henry

La Trobe University - Department of Economics and Finance ( email )

Department of Economics and Finance
La Trobe Business School
Bundoora 3086 Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Md. Hamid Ullah Bhuiyan (Contact Author)

La Trobe University - School of Economics and Finance ( email )

Victoria
Australia

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
324
Abstract Views
2,581
rank
103,166
PlumX Metrics