Earnings management during initial public offerings

University essay from Handelshögskolan i Stockholm/Institutionen för redovisning och finansiering

Abstract: In this thesis we study the existence of earnings management in connection to IPOs, as well as the potential effect that having a CEO selling shares in the IPO can have on the level of exercised earnings management. We apply the Modified Jones Model on a set of IPO firms going public on Nasdaq OMX and Nasdaq First North during the years 2006-2016. We find evidence that firms going public manage their earnings predominantly during the years leading up to the IPO as well as in the issue year. We also find evidence that having a CEO who is selling shares in connection to the IPO causes the firm to manage their earnings downwards during the issue year. Several robustness tests support these findings.

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