Earnings management and long-run market performance of initial public offerings: evidence from Sri Lanka

Abstract

The goal of this study is analyze the earnings management and the long-run market performance of initial public offerings at the Colombo Stock Exchange (CSE). Earnings management is the use of accounting adjustments to make financial reports that represent an overly positive view of a company’s business activities and financial statement. Initial Public offerings is a process by which privately held company become a public traded company by issuing shares to the general public for the first time. This study analyze the 42 IPO companies listed in Colombo Stock Exchange (CSE) from January 2010 to June 2018. This study used quantitative approach to assess the earnings in an IPO firms in 2010 – June of 2018 IPO firms with secondary data. Researcher Discretionary current accruals (DCA) used to assess earnings management and Buy-and-hold abnormal return (BHAR) method used to assess the Long-run performance. The main finding of this study is from January 2010 to June 2018 IPO firms demonstrate that high discretionary current accrual of IPO year and lower performance in long-run. Further, researcher reveals that January 2010 and June 2018 period IPO firms used accounting adjustment for represent their financial position. Finally researcher concluded that these findings will help investor to understand the IPO firms long term behavior and select appropriate financial firms for investing or crediting o the companies.