Earning management of IPOS in Bangladesh—test of value relevance hypotheses: evidence from the Dhaka Stock Exchange

Abstract

This paper investigates whether entrepreneurs engage in myopic behavior attempting to influence investors’ belief and hence to achieve a high stock price at the floatation by pumping up pre-IPO earnings through the accounting choices. We find evidence, using powerful accrual testing methodology, that entrepreneurs of IPOs coming to the market during 1991-2000, behaved myopically in boosting earnings in the year prior to going public. It is also documented that earnings management had a positive impact on initial firm’s value.