Valuation, Earnings Management and the Underperformance of Loss Seasoned Equity Offerings

Journal of Accounting and Finance, 16(3), 2016

16 Pages Posted: 19 Jan 2018

See all articles by Fernando Comiran

Fernando Comiran

University of San Francisco - School of Management

Tatiana Fedyk

University of San Francisco

Joohyung Ha

University of San Francisco - School of Management

Date Written: 2016

Abstract

The current literature on earnings management around seasoned equity offerings (SEOs) mainly concentrates on discretionary accruals, and considers all SEOs as a homogenous pool of firms. The uniqueness of this paper is in linking firms’ valuation to their discretionary choices and by demonstrating that loss firms do not manage earnings during SEOs as earnings are not informative for their valuation. We find that loss firms overinvest in R&D around SEOs, because R&D expenditures are the main value-driver for loss SEOs. We further show that overinvestment in R&D is negatively associated with future operating performance for loss firms.

Keywords: Seasoned Public Offering; Discretion Over Accounting Items; SEO Valuation; Loss Firms Valuation; Earnings Management

Suggested Citation

Comiran, Fernando and Fedyk, Tatiana and Ha, Joohyung, Valuation, Earnings Management and the Underperformance of Loss Seasoned Equity Offerings (2016). Journal of Accounting and Finance, 16(3), 2016. Available at SSRN: https://ssrn.com/abstract=3103303

Fernando Comiran

University of San Francisco - School of Management ( email )

San Francisco, CA 94117
United States

Tatiana Fedyk (Contact Author)

University of San Francisco ( email )

2130 Fulton Street
San Francisco, CA 94117
United States

Joohyung Ha

University of San Francisco - School of Management ( email )

San Francisco, CA 94117
United States

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