Disclosure And Earnings Management Of SEO Firms

Since the seasoned equity offering (SEO) was adopted as a financing measure of Chinese companies in 1998, it has been popular rapidly and become an important way of equity refunding. It is important to investors and security regulators that whether listed companies manage earnings in their financial reports, if so, whether investors see through earnings management of listed companies around SEO. At the same time, financial reports and disclosure are important means for management to communicate the firm performance with outsider investors.This paper investigates the relation between disclosure and earnings management, and the impact of this relation on post -issue for a sample of SEOs. In the first section the motivations and the characteristic of earnings management around SEO were explained for the later research .In the second section we gave a theoretical explanation about the causes of the effect and as well as the mechanism of the effect. The third section presents the empirical study we designed to test our theoretical study. Our results confirmed that disclosure transparency is inversely related to earnings management and positively associated with post-issue performance .We also found that the firms with the temporarily increased disclosure prior to SEO exhibited more earnings management and poorer post-SEO stock performance, on average. At the end of this paper, we concluded the primary research and put forward some advice for the investors, security regulators, and other related capital market agencies.