IPO Access Regulation And Accounting Choice

China has made remarkable achievements in economic development after four decades of reform and opening-up.The critical reason for this economic success is that the market mechanism is fully functioning,and government intervention only makes up for market deficiencies.However,in some areas,government intervention is still the main role,the role of market mechanism is limited.For example,in China's capital market,regulators are usually directly involved in the resource allocation process,especially in the IPO market,where the CSRC directly determines the listing qualification of companies.This is because in the early stage of the establishment of the stock market,there was a lack of basic system,and strict supervision of new issues effectively maintained the efficiency of market resource allocation,and promoted the rapid start and development of the market.Today,this regulatory system cannot adapt to the financing needs of enterprises brought about by economic development.Therefore,the Chinese government tries to improve this situation through registration-based IPO system.The registration-based IPO system especially emphasizes the securities regulation to improve the quality of enterprise information disclosure.Therefore,it is important to understand the role that IPO regulatory review plays in corporate disclosureThis paper focuses on the IPO approval period,when the CSRC used accounting figures to judge the value of companies and decide whether to grant them IPO qualification.Regulators even set a profit threshold as an important prerequisite for an IPO.In view of this,this paper chooses accounting choice as a research perspective to examine the impact of IPO access regulation on corporate information disclosure.On the one hand,regulatory policies linked to accounting numbers provide incentives for companies to conduct earnings management,which may lead to aggressive accounting choices.On the other hand,the utility function of regulators is asymmetric(Watts,2003),and the penalty that may be suffered by approving the listing of inferior enterprises is far more serious than that by wrongly rejecting high-quality enterprises.Regulators will prefer robust and verifiable accounting figures,which will encourage enterprises to use more robust accounting choices.Based on the above analysis,it can be seen that whether the accounting choice shaped by IPO access regulation is more aggressive or more robust is a question worth testingBased on the institutional background of IPO access regulation in China,this paper investigates the impact of IPO access regulation on accounting choice,and selects three accounting choice perspectives for testing,including: capitalization/expensibility choice of R&D expenditure,provision for bad debts and accrued earnings management.In terms of research design,this paper mainly compares the accounting choices of IPO companies before listing(data from the prospectus)and after listing(data from the company's annual report),supplemented by cross-sectional analysis,to provide evidence and insights for understanding the impact of IPO access regulation on accounting choices.Firstly,a higher degree of R&D expencialization will reduce the accounting profit of the company in the current period and reduce the subjective judgment degree of R&D capitalization.Therefore,the choice of capitalization/expensing of the company's R&D expenditure can help to observe whether the accounting choice of the company is more prudent or more aggressive in the IPO stage.This study shows that only 9% of the IPO sample capitalized R&D expenditure in the three years prior to listing.In the first year and three years after the IPO,the proportion rose sharply to 22%.The regression results also support less capitalization of R&D taking by IPO companies in the pre-IPO phase.Furthermore,the probability and extent of R&D spending by IPO companies before they go public decreased significantly during the period of strict regulation.IPO companies with insufficient profitability have significantly higher probability and degree of R&D expenditure before listing,but such companies will make more adequate information disclosure on the capitalization of R&D expenditure.Secondly,a higher proportion of accounts receivable bad debt provision will reduce the current accounting profit and reduce the space for enterprises to manipulate profit upward in terms of asset impairment items.Therefore,examining the proportion of accounts receivable bad debt provision can test whether enterprises use more stable or more aggressive accounting choices in the IPO stage.When the provision for bad debts is taken as the dependent variable,the provision for bad debts of IPO companies is found to be 12.8%,10.6%,15.7%,9.1%,7.7%,26.7% and 4.7% higher under the 7age categories of "less than 1 year","1-2 years","2-3 years","3-4 years","4-5 years","more than 3 years" and "more than 5 years" after comparing with the listed companies,and regression results also support the fact that the pre-IPO withholding ratio of IPO companies is significantly higher.Further,the provision for bad debt gradually decreases with the listing age of the company.In addition,the group test shows that the provisions for bad debts of IPO companies in the period of strict supervision are higher.After considering the overall aging characteristics of accounts receivable,IPO companies with short aging of accounts receivable will choose a higher proportion of bad debt provision.Thirdly,less earnings management means that the degree of upward manipulation of profits is lower.Therefore,by testing the earnings management,we can examine whether the comprehensive accounting choice of IPO companies is more robust or more aggressive before listing.The regression result shows that the earnings management of IPO firms before listing is significantly lower,and this phenomenon only exists in the sponsor system period(2006-2015),but does not exist in the channel system period(2001-2005).After distinguishing the direction of earnings management(up/down),the main constraint of IPO access regulation on earnings management lead to lower manipulates profits upwards.Considering the impact of stricter regulatory regime on IPO access,the study shows that IPO companies listed during strict regulatory period have significantly less accrual earnings management before listing.During the period of strict regulation,there is no significant difference in earnings management before listing between companies get IPO qualification with multiple stock issue review meetings and pass stock issue review meeting once,However,during the period of non-strict supervision,earnings management of IPO companies with multiple stock issue review meetings was significantly lower.Similarly,the trend is the same for IPOs with smaller earningsFourthly,this paper chooses the H-share market to compare the resource allocation efficiency of IPO access regulation.The high efficiency of IPO financing is reflected in the allocation of financing to good enterprises.Therefore,we can observe the resource allocation efficiency of IPO access regulation from the accounting performance of IPO companies after listing.We find that A-share IPO companies have significantly lower accounting performance than H-share companies after listing.This phenomenon of more significant in companies with small company size and IPO suspension.The A-share IPO companies listed under strict regulation did not show better post-listing accounting performance but the Pre-IPO net profit scale will be larger.The results of quantile regression also support that the performance of A-share IPO companies after listing is significantly worse,and the distribution is basically uniform at each sub-point,and the phenomenon of worse performance of A-share IPO companies after listing is improved just at sub-point 0.9.The research contributions of this paper are as follows: First,existing literature has noted that regulatory costs and political costs will have an impact on accounting choices(Watts and Zimmerman,1986;Ball,2001;Kothari et al.,2010).This paper finds that IPO access regulation encourages listed companies to choose robust accounting choices,thus expanding the literature on how securities access regulation shapes accounting policy choices.Second,this paper is related to the literature in the field of earnings quality of IPO companies.Second,traditional views emphasize that earnings management is more likely to be carried out in the IPO stage(Teoh et al.,1998;Aharony et al.,2000),however,recent literature has criticized this,arguing that companies in the IPO stage face stricter market supervision and regulatory scrutiny than those in the private(unlisted)stage,and the earnings quality in the IPO stage is significantly higher(Ball and Shivakumar,2008;Fang Junxiong,2016;Sletten et al.,2018).This paper finds that Chinese companies choose more robust accounting options and lower earnings management in the IPO stage,which provides incremental evidence for the debate in the IPO earnings quality field.Third,this paper enriches the literature on accounting choice of R&D expenditure.Domestic studies have examined the capitalization/expensed choice of R&D expenditure from the perspectives of performance pressure,controlling shareholder pledge and taxation(Huang Lianghua and Xie Deren,2014;Wang Liangliang,2016;Xie Deren et al.,2017).This paper investigates and finds that IPO access regulation will encourage enterprises to expense R&D expenditure before listing,which provides a new theoretical perspective and empirical evidence for the accounting choice of R&D expenditure.In addition,there is no consensus on whether the provision of bad debts at the IPO stage is more sufficient.This paper finds that IPO companies in China will choose a higher provision of bad debts,thus providing new evidence for the above academic debate.Fourth,the post-listing operating performance of A-share IPO companies is tested by comparing with H-share IPO companies(red chips),and the research perspective of literature in this field is expanded.Traditional methods use inter-group comparison or pre-listing and post-listing comparison of A-share IPO companies...