Quotation Filatotchev, Igor, Jona, Jonathan, Livne, Gilad. 2019. Earnings Management in Domestic and Foreign IPOs in the United States: Do Home Country Institutions Matter? European Accounting Review. 29 (2), 307-335.


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Abstract

Using a large sample of domestic and foreign IPOs in the US, we investigate how threats of enforcement by the Securities and Exchange Commission (SEC) and private litigation influence earnings management in IPO prospectuses. We propose that perceptions of foreign institutions may influence SEC enforcement action and private litigation. We provide evidence that enforcement and litigation threats are negatively related to the strength of legal institutions in the foreign IPO’s country of origin. We find earnings management is more pronounced in foreign IPOs from countries with strong legal institutions. We further explore whether earnings management is priced in the IPO market and find no relation between IPO proceeds and earnings management. Our results are consistent with upward earnings management as in Stein (1989), the magnitude of which is reduced when the anticipated cost of enforcement and litigation is higher. Collectively, our results cast doubt on the validity of the bonding hypothesis.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal European Accounting Review
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-A, WH-A
Language English
Title Earnings Management in Domestic and Foreign IPOs in the United States: Do Home Country Institutions Matter?
Volume 29
Number 2
Year 2019
Page from 307
Page to 335
Reviewed? Y
DOI http://dx.doi.org/10.1080/09638180.2019.1620113
Open Access N

Associations

People
Filatotchev, Igor (Details)
External
Jona, Jonathan (University of Melbourne, Australia)
Livne, Gilad (University of Exeter Business School, United Kingdom)
Organization
Competence Center for Emerging Markets and CEE WE (Details)
Institute for International Business (Dikova) (Details)
Institute for International Business IN (Details)
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