Do Firms Manage Their Earnings During Initial Public Offerings?

Abstract

This study investigates if IPO firms in Indonesia manage their
earnings around the time of their IPO. Using financial data from 1999
to 2012, I examine the abnormal accruals of IPO firms during the three
years prior to their IPO year and in their IPO year. I find that issuing
firms managed their earnings starting two years prior to their IPO year
and that earnings management was most profound in the IPO year. Further
tests indicate that firms used income-increasing accruals during
the period leading to the IPO. These findings are consistent with the
view that firms manage their earnings to maximize the initial offer price
and the proceeds from the IPO