Earnings Management, Corporate Governance and the Market Performance of Seasoned Equity Offerings

32 Pages Posted: 2 Dec 2002

See all articles by Michael Firth

Michael Firth

Lingnan University - Department of Finance and Insurance

Ken Ching

Hong Kong Polytechnic University - School of Accounting and Finance

Oliver M. Rui

China Europe International Business School (CEIBS); affiliation not provided to SSRN

Date Written: September 2002

Abstract

This paper examines whether pre-issue discretionary current accruals predict post-issue earnings performance and returns. We find evidence suggesting that offering firms borrow future income to manage earnings in pre-issue years and consequently earnings decrease in post-issue year 2. The information content of pre-issue discretionary current accruals is reflected in one-year buy and hold abnormal returns for the rights offering firms. Our paper also examines whether the incidence of earnings management around SEOs depends on corporate governance structures. Our results show that SEO firms that have larger board size have a higher degree of earnings management around SEOs. This result is consistent with Jensen's (1993) view that smaller boards provide more of a controlling function than do larger boards.

Keywords: earnings management, corporate governance, seasoned equity offerings

JEL Classification: G32, G34, M41, M43

Suggested Citation

Firth, Michael and Ching, Ken and Rui, Oliver M. and Rui, Oliver M., Earnings Management, Corporate Governance and the Market Performance of Seasoned Equity Offerings (September 2002). Available at SSRN: https://ssrn.com/abstract=337880 or http://dx.doi.org/10.2139/ssrn.337880

Michael Firth

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Ken Ching

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Oliver M. Rui (Contact Author)

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

HOME PAGE: http://https://www.ceibs.edu/rui-oliver

affiliation not provided to SSRN

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