Review of Accounting Studies

, Volume 23, Issue 3, pp 872–906 | Cite as

When and why do IPO firms manage earnings?

  • Ewa SlettenEmail author
  • Yonca Ertimur
  • Jayanthi Sunder
  • Joseph Weber


There is significant disagreement about whether, when, and why IPO firms manage earnings. We precisely identify the timing and motives behind earnings management by IPO firms. The period around an IPO is characterized by two events: the IPO itself and the lockup expiration. Both the raising of capital at the IPO and the exit by pre-IPO shareholders at lockup expiration create incentives for firms to manage earnings. To disentangle the effect of these events, we examine quarterly, rather than annual, abnormal accruals. We find no evidence of income-increasing earnings management before the IPO. However, IPO firms exhibit positive abnormal accruals in the quarter before and the quarter of the lockup expiration. Positive abnormal accruals are concentrated in less scrutinized firms and firms with high selling by pre-IPO shareholders. Moreover, we find that these accruals subsequently reverse and that such reversals contribute to long-run IPO underperformance.


IPO lockup Earnings management 

JEL Classification

G14 G3 G30 G32 



We thank Matthew Cedergren, Amy Hutton, Richard Frankel, Sugata Roychowdhury, Richard Sloan (editor), Dan Taylor (discussant), two anonymous referees, attendees of the 2017 Review of Accounting Studies Conference, and seminar participants at Boston College, University of Florida, MIT, Singapore Management University, Washington University, the 2016 Darden Accounting Spring Camp, the NYU Accounting Summer Camp, and the 2016 American Accounting Association Annual Meeting for valuable comments and suggestions.


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Boston CollegeChestnut HillUSA
  2. 2.Leeds School of BusinessUniversity of Colorado at BoulderBoulderUSA
  3. 3.University of ArizonaTucsonUSA
  4. 4.Sloan School of Management, MITCambridgeUSA

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