Industry Regulation, Earnings Mangement And IPO Over Financing

The phenomenon of IPO over financing has become a hot topic nowadays. IPO over financing is undoubtedly against the optimized allocation function of capital market. IPO over financing is probably that is the distribution companies take accruals earnings management before initial public offerings in order to gain release earnings. Distribution companies transmit the wrong accounting information to the bond market, and raise the price of new shares, finally the actual amount of the raised money is over the plan’s.The paper employed accruals earnings management and real earnings management to measure the degree of the earnings management, while sales management, production management and cost management was used in measuring the degree of real earnings management. We researched whether the differences in over financing rate was due to the variations in the earnings management before IPO, tested the effect of earnings management in promoting over financing, explored the means by which the companies employed to perform earnings management. We employed552IPO sample data formed from the period2006to2010in China’s A-share Market board to test our hypothesis.The empirical result proves that the degree of earnings management has significant positive influences on IPO over-financing rate. Distribution companies not only took the accruals earnings management, but also used real earnings management before initial public offerings. In consideration of the industry characteristics maybe influence the mode selection of earnings management, and further distinguish between the regulated industries and no control industries. The empirical result proves that if distribution companies in regulated industries more inclined to choose real earnings management, because it has hidden features, and these industries are monitored strict by government. If distribution companies in no control industries more inclined to choose accruals earnings management in order to improve the issue price and raise excess funds, because these earnings management methods have lower cost.