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Earnings Management and Public Equity Issues in Emerging Markets

Student: Elena Misharina

Supervisor: Sergey Stepanov

Faculty: Faculty of Economic Sciences

Educational Programme: Strategic Corporate Finance (Master)

Final Grade: 9

Year of Graduation: 2016

This study investigates the phenomenon of earnings management (EM) during initial public offerings (IPO) over the period 2001-2011 in emerging countries from MSCI index. Specifically, we examine whether unusually high current accruals as a proxy for earnings management are associated with poor stock performance in the long-run. Researchers still did not find any clear answers do managers manage earnings or it is impossible in current market conditions and would be immediately penalized by low stock price. The research design is based on the modified Jones model (1995) for discretionary accruals calculation, uses BHARs, CARs, raw returns calculation for long-term returns and regression analysis of returns against discretionary accruals on the basis of Ritter model (1991). We find a negative relation between our proxy of EM (discretionary current accruals) and long-run stock price performance over three years after IPO. These findings are statistically and economically significant.

Full text (added May 15, 2016)

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