Earnings management before seasoned equity offerings and share repurchases: Empirical analysis during 1990-2008 using U.S. companies

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dc.contributor Aalto-yliopisto fi
dc.contributor Aalto University en
dc.contributor.author Hautaniemi, Eero
dc.date.accessioned 2016-06-14T06:01:04Z
dc.date.available 2016-06-14T06:01:04Z
dc.date.issued 2016
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/20698
dc.description.abstract OBJECTIVES OF THE STUDY In this thesis, I analyse if firms that are aggressive in earnings management before both share repurchases and seasoned equity offerings ("SEOs") experience abnormal long-term stock performance. I also study if there is overlap in companies managing earnings aggressively before share repurchases and SEOs. To my knowledge, earnings management studies conducted before have focused either on share repurchases or on SEOs. DATA AND METHODOLOGY The empirical analysis is based on a sample of U.S. listed firms that have executed at least one SEO and one share repurchase in a period from January 1990 to December 2008. Additionally, the sample period is divided into two subperiods to study the effect of Sarbanes-Oxley Act in 2002. The sample consists of 2,026 SEOs and 2,966 open market share repurchases using a set of 1,372 companies listed in NASDAQ, NYSE or AMEX. The methodology in this thesis consists of regression analysis used in two main models. The first is a modified Jones (1991) model to find accrual-based earnings management. The second is Fama & French (1993) three-factor model to detect abnormal long-term stock performance with a calendar-time portfolio method. RESULTS The main finding of the thesis provides an explanation whether the same companies that are aggressive in earnings management have abnormal stock returns deriving from downwards earnings management in share repurchases and upwards earnings management in SEOs. My results show abnormal long-term stock returns that significantly differ from the market benchmark. Firms that conducted a SEO and a share repurchase and were in the most conservative quartile in both before a SEO and a share repurchase had 31.09 percentage points higher compounded 5-year returns than the aggressive quartile in the pre-SOX subperiod of 1990-2002. Additionally, I found a strong correlation between the most aggressive quartile of companies to manipulate earnings before both share repurchases and SEOs. This is contrary to the conservative quartile findings, where correlation was low and discretionary accrual levels differ between share repurchases and SEOs. en
dc.format.extent 54
dc.language.iso en en
dc.title Earnings management before seasoned equity offerings and share repurchases: Empirical analysis during 1990-2008 using U.S. companies en
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Business en
dc.contributor.department Rahoituksen laitos fi
dc.contributor.department Department of Finance en
dc.subject.keyword Earnings management
dc.subject.keyword Share repurchases
dc.subject.keyword Seasoned equity offerings
dc.identifier.urn URN:NBN:fi:aalto-201609083408
dc.type.dcmitype text en
dc.programme.major Rahoitus fi
dc.programme.major Finance en
dc.type.ontasot Pro gradu tutkielma fi
dc.type.ontasot Master's thesis en
dc.subject.helecon rahoitus
dc.subject.helecon financing
dc.subject.helecon tulos
dc.subject.helecon return
dc.subject.helecon osakkeet
dc.subject.helecon shares
dc.subject.helecon yrityksen arvo
dc.subject.helecon company valuation
dc.ethesisid 14373
dc.date.dateaccepted 2016-03-07
dc.location P1 I

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