Earnings Management during IPO at Indonesia Listed Companies

This study aims to obtain empirical evidence about the practice of earnings management in the period before, during and after IPO. Using longitudinal approach, this study examines two years before, in the year, and two years after IPO. The result of this study indicates that there is income increasing-earnings management during the IPO period, but not in the period before IPO. This study also found that the decline in firms’ financial performance, which is measured by Return on Assets, in the period of two years after the IPO. This study also found no empirical evidence of the decline in firms’ market performance, as measured using the cumulative abnormal return, in the period after the IPO. Therefore, the IPO may be a signaling to investors and other interested parties that companies tend to perform actions that are opportunistic earnings management to attract investors. The decrease in the post-IPO financial performance is a result of accrual reverse from earnings management during IPO period. However, concurently share return does not decline in the post-IPO period suggest that financial performance is not as the sole information for investor, consequently the decline in financial performance does not impact on the share price