Title
Causal disclosures on earnings and earnings management in an IPO setting Causal disclosures on earnings and earnings management in an IPO setting
Author
Faculty/Department
Faculty of Applied Economics
Publication type
article
Publication
New York ,
Subject
Economics
Source (journal)
Journal of accounting and public policy. - New York
Volume/pages
30(2011) :5 , p. 431-459
ISSN
0278-4254
ISI
000295997400002
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
Abstract
We examine the association of earnings management and narrative impression management as reflected in properties of causal explanations of reported earnings in the prospectus of Chinese IPO firms. Anticipated earnings management concerns are argued to be a significant incentive for causal disclosures on earnings in order to rationalize and legitimize earnings outcomes. We find evidence of close alignment of a firms earnings management propensity and its use of tactical causal disclosures. Stronger earnings management is associated with more intense assertive causal disclosure. On the other hand, firms exhibiting stronger earnings management tend to avoid the use of explicit defensive causal disclosure tactics. These findings are consistent with the strong background expectations of managerial agency and control that pervade an IPO setting. Our evidence holds after controlling for endogeneity within the context of an opportunistic disclosure position.
E-info
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