IPO Pricing, Earnings Management And Executive Holdings

The problem of executives’ reduction has been there since the gem established, or even worse, which seriously violates the original intention of the gem, causes uproar in the securities market, brings the hardship to small and medium-sized investors. Domestic and foreign scholars have found that the ultimate purpose of executives reduction is to get excess returns, so executives will do earnings management for reducing stocks. However, previous scholars had searched with accrued earnings management, few scholars searched the relationship between executives reduction and real earnings management. Nevertheless, with the completion of the capital、legal system and accounting standards, many scholars have found that, compares with accrued earnings management, real earnings management has less constraint condition and been used more flexible, the manipulation space is larger, and difficult to be found, because the real earnings management is established with real activities, it gets the favor of executives gradually, but the real earnings management brings the bigger damage to the future performance and development of the enterprise. At this moment, managers should to make a trade-off between the two types of earnings management. In addition, there are several studies has found that the high IPO valuation contributed to the phenomenon of executives resign for money of gem, and the IPO valuation is higher, the probability of executives resign is more bigger, the number of executives resign is more much, the first time of executives resign is more shorter. But few people studied the effect between high IPO valuations with executives stocks on the job.Therefore, this paper makes the gem listed companies in 2009—2011 as the research object, research whether the IPO pricing effects the executives reduction in the two accounting years after the periods of stock lock-up of the listed companies, and what’s the relationship between IPO pricing and the range of executives reduction? This paper also researches whether executives do the accrued earnings management or real earnings management before their reducing? And if they real have the two earnings management, whether the IPO pricing effects the choosing of the earnings management? According to the above problem, through the establishment of model and regression analysis, this paper obtains the following conclusions:(1) Compared with the enterprises of high IPO valuation, the executives of the enterprises with low IPO valuation are more likely to reduce stocks. As the companies with low IPO valuation have a higher growing space, it is not difficult for executives to improve the price of stocks, and with the ever rise of stocks, it will stimulate the desire of executives to reduce stocks. Foe the companies with high IPO valuation, its IPO price is on the high valued, its real price is difficult to support the high price of IPO, so it is difficult for the companies to maintain the high price in the period of the stocks locking, if the stock’s price lower than IPO price, executives are unwilling to reduce. So when the IPO price is lower, the executives are more likely to reduce stocks.(2) IPO pricing and the range of executives reduction are positively correlated relationship, i.e. the higher the IPO pricing, the range of reduction is larger. For the enterprises with high IPO pricing, there are difficult to maintain the high price, so if the executives have remain the high price or even improve the price, executives will reduce stocks as much as they can. For the enterprises with low pricing, although its growth is high, the future performance and stocks price change is not certain, the executives cannot certain the highest price, so every raise of stock price will cause the desire of executives to reduction, then they will choose a few and multiple way to reduce stocks.(3) Before executives’ reduction, they will have the positive accrued earnings management to get more profits. By earnings management, executives can achieve the purpose of change performance and manipulate stock price. As a rational agent, for the sake of personal interests to maximize, executives will do accrued earnings management before reducing.(4) Before executives’ reduction, they will also have the positive real earnings management to get more profits. Compared with accrued earnings management, though the real earnings management has longer damage to company, but its manipulation methods are flexible, which difficult to be found, it is more popular to executives.(5) When the enterprise IPO price is low, executives will both have accrued earnings management and real earnings management to improve the stock price for more returns. The enterprise with low IPO price has a bigger growth space, so it can both use accrued earnings management and real earnings management.(6) When the enterprise IPO price is high, executives will have accrued earnings management to maintain the high stock price for more returns. Because the overall level of earnings management of an enterprise is limited, the enterprise with high IPO price may have a greater degree of earnings management behavior, and executives want to stay in business for a long time, they must consider the future profit, then to choose the accrued earnings management with relatively small damage to maintain the high price.At the last, according to the research conclusion, this paper puts forward some suggests, such as strengthen national legal policy, control executive reduction behavior, strengthen the regulation of IPO, improve the IPO pricing efficiency, strengthen corporate governance, improve corporate internal control, improve the system of information disclosure, protect the interests of minority shareholders, to curb executive reduction behavior and maintain stability of the securities market.