Earnings Management Around Seasoned Equity Offerings In Chinese Listed Companies

Over the past two decades, along with the development of China’s securities market, the scale of seasoned equity’ offerings has been expanding rapidly. And seasoned equity offerings have become one of the most important sources for Chinese listed companies to raise money. Considering refinancing conditions and the issue price of new shares, seasoned equity offerings provide a direct incentive to manage earnings. Previous studies on earnings management around seasoned equity offerings mainly focused on accrual-based earnings management and attributed the post-offering underperformance to accrual manipulation.However, new accounting standards and increasing regulations have already limited managers’ability to employ accrual-based earnings management. Considering that relying on accrual manipulation alone is risky, managers switch to use real activities to manage earnings. Therefore, real earnings management enables us to have a more comprehensive understanding of earnings management around seasoned equity offerings in Chinese listed companies.For a sample of636seasoned offerings from the year2008-2013, using quarterly financial statement data, I find that Chinese listed companies engage in accrual-based and real earnings management activities around seasoned equity offerings. Our evidence implies that both accrual-based and real earnings management cause the decline in short-run post-SEO operating performance. The decline in long-run post-SEO operating performance, however, is mainly driven by real activities management. Investors cannot infer real earnings management around seasoned equity offerings in Chinese listed firms.