Test For The Long-run Performance After SEOs Of China's A Stock Market

"The new issues puzzle"is one of the most interesting topics among financial fields. It refers that in the long run horizon, new issues (including IPOs and SEOs) are outperformed by matching company's stocks. Many scholars have studied this puzzle with data from different countries and of different periods, indicating that the new issues puzzle is not an accident. The window of opportunity hypothesis, the under-reaction hypothesis and the earnings management hypothesis are often introduced to explain the puzzle. The long run performance after issuing is quite valuable for value-seeking long-run investors: if the new issues perform weakly in the long run, these investors will avoid the new issues. Domestic scholars pay more attention to IPOs, but studied little on the long run performance around SEOs, and these articles examine usually the information content around the short periods of SEOs. This article aims at systematically studying the long-run performance of China's SEO issues; and the result is of help to investors, analysts and supervisors.This paper tests the new issues puzzle with the data from China's A stock market , with the data of 2000-2002 and 2005-2006, and finds out that the puzzle also exists in China's stock market. Then the author proxy earnings management with the method of modified Jones'model, and tests the hypothesis of earnings management. The results indicate that the earnings management hypothesis can explain the new issues puzzle in China. At last, this paper tries to test the factors that may lead to earnings management and hopes to judge which companies may perform earnings management before SEOs.