The long- run operating performance of IPO firms in Australia

Lye, Andrew C. L. (1999). The long- run operating performance of IPO firms in Australia Honours Thesis, Department of Commerce, The University of Queensland.

       
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Author Lye, Andrew C. L.
Thesis Title The long- run operating performance of IPO firms in Australia
School, Centre or Institute Department of Commerce
Institution The University of Queensland
Publication date 1999
Thesis type Honours Thesis
Total pages 92
Language eng
Subjects 15 Commerce, Management, Tourism and Services
Formatted abstract This study investigates the change in operating performance of firms as they make the transition from private to public ownership in Australia. A significant decline in operating performance for 3 years subsequent to the initial public offering is found. In addition, post-issue declines in the market-to- book ratio, price-earnings ratio and earnings per share are also documented. This is consistent with the notion that (1) entrepreneurs overinvest resulting from increased agency costs due to ownership structure changes; (2) managers attempt to time their issues to coincide with periods of unusually good performance; and (3) managers attempting to window-dress by overstating pre-IPO performance. These results suggest that investors appear to value firms going public based on the expectation that earnings growth will continue while in actuality the pre-IPO profit margins on which the expectations are formed are not even sustained.

Further investigation reveals that the decline in post-issue operating performance measures is a result of high at-issue discretionary accruals, which cannot be sustained into the post-issue years. In addition, at-issue discretionary accruals are a good predictor of the cross-sectional variation in post-issue earnings underperformance, supporting the conjecture that earnings management during an IPO is opportunistic. These results are robust with respect to alternative earnings management measures and earnings performance measures. Overall, the results suggest that investor optimism at the time of an IPO may come about from the failure to discount earnings which have been opportunistically inflated by accruals.

 
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Created: Wed, 20 Oct 2010, 13:06:40 EST by Muhammad Noman Ali on behalf of Social Sciences and Humanities Library Service