IPOs, clustering, indirect learning and filing independently

IPO underpricing has been attributed to valuation uncertainty, which can be at least partially resolved by the indirect learning associated with IPO clustering [Benveniste, L.M., Ljungqvist, A., Wilhelm, W.J., Yu, X.Y., 2003. Evidence of information spillovers in the production of investment banking services. Journal of Finance 58, 577–608]. We examine why firms might choose not to issue their IPOs contemporaneously with clusters of similar firms, forgoing opportunities to learn from their peers. We find that the willingness to file an IPO without the benefit of indirect learning from peer firm IPOs is directly related to insiders’ needs for portfolio diversification and the firm’s need to raise capital.

Earnings behaviour of financially distressed firms:The role of institutional ownership

Using a sample of 859 U.S. bankruptcy-filing firms over the period 1986-2004, we examine the earnings behaviour of managers during the distressed period by looking at sources of abnormal accruals prior to the bankruptcy-filing year. Results show that managers of highly distressed firms shift earnings downwards prior to the bankruptcy filing. We test and provide evidence in support of two potential contributing factors. First, top-level management turnover among distressed firms leads new managers to earnings bath choices during the distressed period. Second, qualified audit opinions exert pressure on managers to follow more conservative earnings behaviour during the distressed period. Evidence is also provided that the management of distressed firms with lower (higher) institutional ownership has greater (lesser) tendency to manage earnings downwards. Results also show that higher institutional ownership mitigates the negative abnormal returns of firms with top management turnover. To the authors' knowledge, this is the first study that attempts to examine whether institutional ownership relates to market reaction in conjunction with a top management turnover or a qualified audit opinion during the distressed period. Prior studies focused on the investigation of earnings management or institutional ownership (separately) during the distressed period, but did not examine if the effect of institutional ownership on earnings behaviour also influences subsequent returns. Thus, the results of this study should be of interest to analysts, standard setters and regulatory bodies since our results show that management turnover, qualified audit opinions and firm governance mechanisms affect the quality of earnings and the level of abnormal returns. © 2007 Accounting Foundation, The University of Sydney.

Managerial discretion in distressed firms

This study examines the earnings management behaviour of 455 distressed US firms that filed for bankruptcy during the period 1986-2001. We examine (a) possible earnings management during the years prior to bankruptcy-filing, (b) whether qualified audit opinions cause conservative earnings management behaviour, (c) whether earnings management differs between firms that discontinued operations and firms that survived thereafter, and (d) the effect of earnings management on subsequent stock returns. Our results are consistent with downwards earnings management 1 year prior to the bankruptcy-filing. Results also show that (a) firms receiving unqualified audit opinions 4 or 5 years prior to the bankruptcy-filing event manage earnings upwards in subsequent years, consistent with Rosner [2003. Earnings manipulation in failing firms. Contemporary Accounting Research 20, 361-408], (b) more conservative earnings management seems to be related to the qualified audit opinions rendered in the preceding year, (c) firms with long-term negative accruals the year of bankruptcy-filing have a greater chance to survive thereafter, and (d) more pronounced (negative) earnings management is associated with more negative (next year's) subsequent returns. © 2007 Elsevier Ltd. All rights reserved.

Macroeconomic determinants of contingent protection:the case of the European Union

Contingent Protection has grown to become an important trade restricting device. In the European Union, protection instruments like antidumping are used extensively. This paper analyses whether macroeconomic pressures may contribute to explain the variations in the intensity of antidumping protectionism in the EU. The empirical analysis uses count data models, applying various specification tests to derive the most appropriate specification. Our results suggest that the filing activity is inversely related to the macroeconomic conditions. Moreover, they confirm existing evidence for the US suggesting that domestic macroeconomic pressures are a more important determinant of contingent protection policy than external pressures.