Two Essays on IPO Earnings Management

This dissertation includes two essays that study initial public offerings (IPO) earnings management. The first essay examines the underwriter\u27s certification and monitoring roles in IPO earnings management; the second essay explores the relation between IPO earnings management and post-IPO institutional ownership. In the first essay, we investigate the certification role played by underwriters. We hypothesize that there is a negative relation between IPO earnings management and underwriter reputation and that there is a positive relation between underwriter reputation and firm operating performance. In addition, underwriters continue providing monitoring to the firms they take public. Using a sample of IPOs, we obtain results supporting our hypotheses. A weighted least squares regression confirms the robustness of our results. In the second essay, we address two questions: (1) whether post-IPO institutional ownership is affected by pre-IPO earnings management; and (2) whether the presence of institutional ownership has an impact on stock return. We find that institutional investors are not likely to be deceived or misled by pre-IPO earnings management. Institutional investors seem to be able to identify IPO firms of higher quality and always seek IPO firms with lower discretionary accruals depending on post-IPO information, but the presence of institutional ownership itself has little impact on stock returns