Abnormal Accruals in Newly Public Companies: Opportunistic Misreporting or Economic Activity?

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dc.contributor.authorArmstrong, Christopher S
dc.date2023-05-17T15:39:28.000
dc.date.accessioned2023-05-22T11:48:17Z
dc.date.available2023-05-22T11:48:17Z
dc.date.issued2016-05-01
dc.date.submitted2016-10-04T14:12:17-07:00
dc.description.abstractNewly public companies tend to exhibit abnormally high accruals in the year of their initial public offering (IPO). Although the prevailing view in the literature is that these accruals are caused by opportunistic misreporting, we show that these accruals do not appear to benefit managers and instead result from the normal economic activity of newly public companies. In particular, and in contrast to the notion that managers benefit from inflating accruals through an inflated issue price, inflated post-IPO equity values, and increased insider trading profits, we find no evidence of a relation between abnormal accruals and these outcomes. Instead, consistent with these accruals resulting from normal economic activity, we find that these accruals are attributable to the investment of IPO proceeds in working capital and that controlling for the amount of IPO proceeds invested in working capital produces a more powerful accrual-based measure of misreporting.
dc.identifier.urihttps://repository.upenn.edu/handle/20.500.14332/1055
dc.legacy.articleid1121
dc.legacy.fields10.1287/mnsc.2015.2179
dc.legacy.fulltexturlhttps://repository.upenn.edu/cgi/viewcontent.cgi?article=1121&context=accounting_papers&unstamped=1
dc.source.beginpage1316
dc.source.endpage1338
dc.source.issue13
dc.source.issue5
dc.source.journalAccounting Papers
dc.source.journaltitleManagement Science
dc.source.peerreviewedtrue
dc.source.statuspublished
dc.source.volume62
dc.subject.othermisreporting
dc.subject.otherearnings management
dc.subject.otherfinancial reporting quality
dc.subject.otheraccruals
dc.subject.otherincentives
dc.subject.otherinsider trading
dc.subject.otherinitial public offering
dc.subject.othernew issues puzzle
dc.subject.otherinvestment
dc.subject.otherAccounting
dc.subject.otherBusiness Administration, Management, and Operations
dc.titleAbnormal Accruals in Newly Public Companies: Opportunistic Misreporting or Economic Activity?
dc.typeArticle
digcom.contributor.authorArmstrong, Christopher S
digcom.identifieraccounting_papers/13
digcom.identifier.contextkey9230915
digcom.identifier.submissionpathaccounting_papers/13
digcom.typearticle
dspace.entity.typePublication
upenn.schoolDepartmentCenterAccounting Papers
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