Effects Of IPO Earnings Management On The Price Bubble And Subsequent Operating Performance

China's stock market is inefficient.Listed on the first day closing price is often significantly higher than its issue pricing(IPO underpricing).Issuer doesn't have issuing motivation of low price.Many reasons are possible to cause deviation of intrinsic value of new share pricing,generating pricing bubble,including heterogeneous beliefs from investors,IPO system restriction(e.g.short-sale constraints and access system),earnings management and media management by issuer,not undertaking responsibility by intermediary agency,and macro-economic factors.Among them,this paper focuses on earnings management factors before the IPO.This paper,starting with the function of earnings information,analyzes the motivation and opportunities for IPO earnings management,holding the opinion that,it is possible for issuer to take accrued or real earnings management based on more benefits by meeting the requirement of listing and making a high price.However,this opportunistic behavior can only be favorable for short-term operating performance(resulting in pricing bubble),but can't make any contribution to long-term operation and development of enterprise(leading to a decline in performance).Therefore,we are primarily concerned with the impact of pre-IPO earnings management on pricing bubbles and its impact on follow-up operating performance.There are in total 1191 non-financial business as research targets for IPO by A-share,and time is from the beginning of 2007 to the end of 2014.Modified Jones model and real earnings management model are respectively used for measurement of degree of accrual earnings management(DA)and real earnings management(RM).The pricing bubble is measured by the deviation rate index of IPO pricing and intrinsic value(measured by RIV model).The description of performance changes is based on financial data,such as ROA,ROE and OPA.The following conclusions are proved by the empirical test:(1)IPO pricing(OP)is obviously higher than intrinsic value(IV),there is bubble pricing and the degree of deviation is higher as for growth enterprise market;(2)before IPO,upward accrued and real earnings management behavior is comprehensively applied by A-share enterprises;(3)after the IPO,operating results fell significantly,and more severe GEM company;(4)IPO earnings management promotes the generation of pricing bubble,and there is significant positive correlation between pricing bubble and DA and RM;(5)there is significant negative correlation between earnings management before IPO and subsequent decline in performance.The main innovation of this paper is that,(1)the internal value of the stock is used to measure the rationality of the IPO pricing,rather than the IPO on the first day of the listing price;(2)study the relationship between earnings management and pricing bubbles,rather than the relationship between earnings management and IPO pricing;(3)using the residual income model(RIV)which is based on the real data after IPO to measure the intrinsic value;(4)the use of accrual and real earnings management model,measure the degree of earnings management before the IPO.