The Effect of the Need for Subsequent Equity Financing on Earnings Management Around Equity Financing

35 Pages Posted: 14 Jun 2006

See all articles by Moshe Hagigi

Moshe Hagigi

Boston University - Questrom School of Business

Kumar N. Sivakumar

Boston University - Department of Accounting

Eng Wu

Boston University - Questrom School of Business

Date Written: December 2005

Abstract

This study examines the relation between earnings management activities of firms issuing equity and the level of their subsequent equity issuance in the immediate future. We hypothesize that equity issuers with less need for subsequent equity issuances are more likely to engage in "income-increasing" earnings management prior to their equity issuances. In contrast, equity issuers with more need for subsequent equity issuances would be more concerned about the potential implications of current earnings management on their future reported earnings. We examine the levels of earnings accruals around equity issuances by listed U.S. companies during the period 1984-2001. We find that the level of income-increasing abnormal accruals around current equity issuance is negatively related to their need for subsequent equity issuance. Our results show that as the need for subsequent equity issuance decreases (increases), the level of current income-increasing accruals increases (decreases.)

Keywords: Corporate Finance, Accruals, Earnings management, equity issuances

JEL Classification: G30, G32. M41, M43

Suggested Citation

Hagigi, Moshe and Sivakumar, Kumar N. and Wu, Eng, The Effect of the Need for Subsequent Equity Financing on Earnings Management Around Equity Financing (December 2005). Available at SSRN: https://ssrn.com/abstract=908650 or http://dx.doi.org/10.2139/ssrn.908650

Moshe Hagigi

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Kumar N. Sivakumar (Contact Author)

Boston University - Department of Accounting ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-353-2035 (Phone)
617-353-6667 (Fax)

Eng Wu

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
152
Abstract Views
1,610
rank
213,631
PlumX Metrics