Earnings management and the floatation structure: empirical evidence from Polish IPOs


  • Tomasz Sosnowski University of Lodz




initial public offering, IPO, primary shares, secondary shares, earnings management


Research background: Firms use discretionary accounting choices to manage earnings disclosures around the time of certain types of corporate events. The initial public offering particularly provides an opportunity to earnings management because of the significant information asymmetry between investors and issuers at the time of the offering.

Purpose of the article: The main aim of the study is to empirically investigate the links between the earnings management and the portions of primary and secondary shares sold in IPO.

Methods: In order to investigate whether the earnings management influences the issue of new shares and the sale of secondary shares I use Tobit and logit regressions, where discre-tionary accruals are the proxy for earnings management.

Findings & Value added: Using a sample of 221 firms from Warsaw Stock Exchange between 2005 and 2015 I do not find evidence that the increase of pre-IPO discretionary accruals positively affects the sale of primary shares in the IPO, but the analysis has revealed that the deliberate conservative reporting limits the probability of the new shares issuance. In turn, the sale of secondary shares by the original shareholders in IPO is more likely in companies using a conservative earnings management. Furthermore, negative discretionary accruals increase the portion of secondary shares sold in the IPO.


Download data is not yet available.


Armstrong, C., Foster, G., & Taylor, D. (2016). Abnormal accruals in newly public companies: opportunistic misreporting or economic activity? Management Sci-ence, 62(5). doi:10.1287/mnsc.2015.2179.
Ball, R., & Shivakumar, L. (2008). Earnings quality at initial public offerings. Journal of Accounting and Economics, 45(2-3). doi:10.1016/j.jacceco. 2007.12.001.
Cumming, D. J., & Macintosh, J. G. (2003). A cross-country comparison of full and partial venture capital exits. Journal of Banking & Finance, 27(3). doi:10.1016/s0378-4266(02)00389-8.
Darrough, M., & Rangan, S. (2005). Do insiders manipulate earnings when they sell their shares in an initial public offering? Journal of Accounting Research, 43(1). doi:10.1111/j.1475-679x.2004.00161.x.
Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings man-agement. Accounting Review, 70(2).
DuCharme, L. L., Malatesta, P. H., & Sefcik, S. E. (2004). Earnings management, stock issues, and shareholder lawsuits. Journal of Financial Economics, 71(1). doi:10.1016/s0304-405x(03)00182-x.
Ecker, F., Francis, J., Olsson, P., & Schipper, K. (2013). Estimation sample selection for discretionary accruals models. Journal of Accounting and Economics, 56(2-3). doi:10.1016/j.jacceco.2013.07.001.
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management liter-ature and its implications for standard setting. Accounting Horizons, 13(4). doi:10.2308/acch.1999.13.4.365.
Hsu, D. H. (2004). What do entrepreneurs pay for venture capital affilia-tion? Journal of Finance, 59(4). doi:10.1111/j.1540-6261.2004.00680.x.
Huyghebaert, N., & Hulle, C. V. (2006). Structuring the IPO: empirical evidence on the portions of primary and secondary shares. Journal of Corporate Finance, 12(2). doi:10.1016/j.jcorpfin.2005.01.001.
Jones, J. J. (1991). Earnings management during import relief investigations. Jour-nal of Accounting Research, 29(2). doi:10.2307/2491047.
Klein, D., & Li, M. (2009). Factors affecting secondary share offerings in the IPO process. Quarterly Review of Economics and Finance, 49(3). doi:10.1016 /j.qref.2009.04.002.
Larcker, D. F., & Richardson, S. A. (2004). Fees paid to audit firms, accrual choic-es, and corporate governance. Journal of Accounting Research, 42(3). doi:10.1111/j.1475-679x.2004.t01-1-00143.x.
Linck, J. S., Netter, J., & Shu, T. (2013). Can managers use discretionary accruals to ease financial constraints? Evidence from discretionary accruals prior to in-vestment. Accounting Review, 88(6). doi:10.2308/accr-50537.
Lowry, M. (2003). Why does IPO volume fluctuate so much? Journal of Financial Economics, 67(1). doi:10.1016/s0304-405x(02)00230-1.
McKee, T. E. (2005). Earnings management: an executive perspective. Mason, OH: Thomson.
Nahata, R. (2008). Venture capital reputation and investment performance. Journal of Financial Economics, 90(2). doi:10.1016/j.jfineco.2007.11.008.
Neus, W., & Walz, U. (2005). Exit timing of venture capitalists in the course of an initial public offering. Journal of Financial Intermediation, 14(2). doi:10.1016/j.jfi.2004.02.003.
Paeglis, I., & Veeren, P. (2013). Speed and consequences of venture capitalist post-IPO exit. Journal of Corporate Finance, 22. doi:10.1016/j.jcorpfin. 2013.04.005.
Pagano, M., Panetta, F., & Zingales, L. (1998). Why do companies go public? An empirical analysis. Journal of Finance, 53(1). doi:10.1111/0022-1082.25448.
Roosenboom, P., Goot, T. V., & Mertens, G. (2003). Earnings management and initial public offerings: evidence from the Netherlands. International Journal of Accounting, 38(3). doi:10.1016/s0020-7063(03)00048-7.
Sosnowski, T. (2015). Czas realizacji pełnego wyjścia z inwestycji funduszy priva-te equity na GPW w Warszawie. Annales Universitatis Mariae Curie-Skłodowska Lublin ? Polonia, 49(4).
Teoh, S. H., Welch, I., & Wong, T. (1998). Earnings management and the long-run market performance of initial public offerings. Journal of Finance, 53(6). doi:10.1111/0022-1082.00079.
Venkataraman, R., Weber, J. P., & Willenborg, M. (2008). Litigation risk, audit quality, and audit fees: evidence from initial public offerings. Accounting Re-view, 83(5). doi:10.2308/accr.2008.83.5.1315.
Xie, H. (2001). The mispricing of abnormal accruals. Accounting Review, 6(3). doi:10.2308/accr.2001.76.3.357.
Zarowin, P. (2015). Estimation of discretionary accruals and the detection of earnings management. Oxford Handbooks Online. doi:10.1093/oxfordhb/97801999 35406.013.20.




How to Cite

Sosnowski, T. (2017). Earnings management and the floatation structure: empirical evidence from Polish IPOs. Equilibrium. Quarterly Journal of Economics and Economic Policy, 12(4), 693–709. https://doi.org/10.24136/eq.v12i4.36



Financial markets

Similar Articles

1 2 3 4 5 6 7 8 9 10 > >> 

You may also start an advanced similarity search for this article.