Do IPOs Bear More Severe Legal Consequences of Accounting Misstatements?

58 Pages Posted: 9 Feb 2022

See all articles by Biyu Wu

Biyu Wu

University of Nebraska-Lincoln

Date Written: December 22, 2021

Abstract

I compare litigation frequency and outcomes associated with restated IPO prospectus financial statements and a matched sample of restated non-IPO financial statements. I find that investors are 8.4% more likely to sue IPO companies than non-IPO companies for misreporting and, more importantly, that the higher litigation rate in IPOs stems from companies with error-type restatements. In addition, I find that IPO suits are more likely to be settled than non-IPO suits. Overall, these results are consistent with plaintiff attorneys’ incentives driving the filing of lawsuits and provide direct evidence that IPO companies face more severe litigation consequences of accounting misstatements than non-IPO companies.

Keywords: initial public offerings, restatements, securities litigation

JEL Classification: M41, M48

Suggested Citation

Wu, Biyu, Do IPOs Bear More Severe Legal Consequences of Accounting Misstatements? (December 22, 2021). Journal of Accounting and Public Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4028833

Biyu Wu (Contact Author)

University of Nebraska-Lincoln ( email )

Lincoln, NE 68588
United States

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