مدیریت سود، اداره امور شرکت ها و عملکرد بازار از ارائه سهام فصلی در هنگ کنگ

This paper examines the use of discretionary current accruals by firms that make seasoned equity offers (SEOs). We find evidence suggesting that firms borrow future income to manage earnings in pre-issue years and consequently earnings decrease in post-issue year 2. However, we find no evidence that pre-issue discretionary accruals affect future stock returns. We find evidence that family-owned firms are more likely to use positive discretionary accruals prior to making an SEO, independent directors and outside blockholders constrain earnings management in family-controlled firms and SEO firms that have a larger board size have a higher degree of earnings management around SEOs.

Seasoned equity offerings (SEOs) provide a direct incentive to manage earnings. To the extent managers can undetectably increase reported earnings, they can improve the terms on which their firms' shares are sold to a third party. In support of this, Rangan (1998), Teoh et al. (1998) and Marquardt and Wiedman (2004) have shown that managers manipulate earnings in periods around SEOs. Their studies argue that managers overstate earnings before SEOs because of opportunism. Marquardt and Wiedman (2004) further argue that earnings of SEO firms are managed upward by accelerating the recognition of revenue. Shivakumar (2000) also reports earnings management by firms making SEOs, but he argues that investors are able to identify these discretionary accruals and price the stock according to its fundamentals. He argues that earnings management at the time of an SEO is a rational behavior by the managers as the stock market expects them to engage in this practice.1 Most research studies on earnings management and all the studies cited above, use data from the US. In comparison, there is a dearth of research in other countries. To investigate whether earnings management takes place around SEO announcements is important from the viewpoint of investors, analysts and regulators. Teoh et al. (1998) and Rangan (1998) argue that poor post-issue performance2 can be explained, in part, by the pre-issue earnings management of seasoned new issuers.3 This implies investors could use the information contained in the pre-offering accounting accruals to discriminate among seasoned equity issuers4 and invest in those firms with negative or low discretionary current accruals. Of course, some skill is needed to detect and unravel the earnings management. Regulators should pay attention to accounting practices that misrepresent or otherwise induce false pictures about firms' performances at the time of SEOs. If investors cannot ‘see through’ the accounting practices, they will be induced to buy the stocks of those firms with higher but ‘false’ reported earnings at the time of SEOs and so scarce capital resources will be misallocated. Regulators have a responsibility to identify situations where earnings management has a greater likelihood of occurrence and to take corrective actions. In this study we use data from Hong Kong to explore whether abnormal or discretionary accruals are used to boost reported earnings before the issue of SEOs and whether any identified earnings management is associated with future stock returns. It is important that national studies be undertaken because the prevalence and extent of earnings management are likely to be functions of the specific environment that the firm operates in. For example, corporate governance mechanisms as well as monitoring and oversight activities will affect the use of earnings management and the importance of these factors differs across firms and across national jurisdictions. Because corporate governance, the legal environment and monitoring activities are far different in Hong Kong than in the US, research studies using American data have limited relevance for Hong Kong. Firms in Hong Kong are predominantly controlled by families. This control is enhanced through pyramid structures and cross-share holdings among firms (Claessens et al., 2000). The major agency problem in Hong Kong lies between the controlling stockholder and the minority stockholders. This contrasts with the US, where the main agency problem is between the professional managers and the stockholders. When an owner effectively controls a firm, he or she also controls the production of the firm's accounting information and its reporting policies. Here, the owner may report accounting information more for self-interested purposes than to reflect the firm's true underlying economic performance. In this study, we investigate whether family-controlled firms manipulate earnings to a greater or lesser extent than non-family-controlled firms. The impact of highly concentrated family ownership on the production of accounting information has not been extensively studied so far and thus our study makes a contribution to the literature. It is often claimed that boards of directors structured to be independent of management are best able to perform their independent oversight functions (Fama, 1980; Fama and Jensen, 1983). In Hong Kong, however, the board is dominated by the controlling stockholders who also take the CEO and chairman positions. Companies have independent non-executive directors who are supposed to safeguard the interests of the non-controlling (or minority) stockholders. A larger proportion of independent directors should, in theory at least, be able to better control the opportunistic actions of top management and the controlling stockholders. To see if this is true, we examine whether more ‘independent’ boards have the ability to withstand pressure from the firm to manipulate earnings around SEOs. US evidence (Shleifer and Vishny, 1986; Jensen, 1993) shows that large block stockholders have incentives to monitor management and serve as an additional control mechanism. We examine whether the presence of an outside blockholder is negatively related to the degree of earnings management around SEOs. Empirical studies in the US (Francis et al., 1999; Becker et al., 1998) show that Big-6-audited firms have lower amounts of estimated discretionary accruals. This finding is consistent with Big 6 auditors constraining aggressive and potentially opportunistic reporting of accruals. In a recent study, Zhou and Elder (2004) conclude that Big 5 auditors are associated with lower earnings management in the years surrounding SEOs made by US corporations. Using data from Hong Kong we also examine whether Big-6-audited firms have lower amounts of earnings management around SEOs than non-Big-6-audited firms. Whether ‘good corporate governance practices’ actually inhibit the self-serving behavior of family-controlled firms is an empirical matter that we address using data from Hong Kong.

This study examines the use of discretionary accruals by firms that make SEOs. In particular, we investigate whether pre-issue discretionary current accruals help explain post-issue earnings performance and returns. A number of interesting results emerge from our analyses. First, we find evidence of positive discretionary accruals being made in the year prior to the SEO. Second, we find a significant and negative relation between pre-issue discretionary current accruals and the change in return on assets. These results imply that offering firms borrow future income to manage earnings in pre-issue years and then earnings decline in years 1 and 2. Third, using a variety of measurement methods, we find no significant relation between pre-issue discretionary current accruals and long-run stock returns. This result implies the stock market is not fooled by the use of discretionary accruals at the time of SEOs. Our findings contrast with the US research of Rangan (1998) and Teoh et al. (1998) but they are consistent with the results of Shivakumar (2000). Fourth, our results show that SEO firms that have a larger board have a higher degree of earnings management around SEOs. The results are consistent with Jensen's (1993) view that smaller boards provide more of a control function than do larger boards. There is significant evidence that family control is associated with higher discretionary accruals. However, independent directors and outside blockholders help suppress the use of positive discretionary accruals by family-controlled firms. Our results indicate that managers engage in earnings management prior to announcing SEOs. Their intention may be to boost the stock price and therefore increase the proceeds from the SEOs. However, our long-run stock return analyses find no evidence that this earnings management fools the stock market. Overall, our findings suggest that investors are aware of possible earnings management by firms that make SEOs. The results show that corporate governance mechanisms do have an impact on the use of earnings management around the time of SEOs.