Results (
Indonesian) 1:
[Copy]Copied!
IPOs, Operating Activities, and IPO Underpeormance
Author: Liu, Michelle; Forester, Clayton ProQuest document ink
Abstract: This paper examines how operating activities after lPOs contribute to underperformance. The authors find that firms issuing equity, and those taking advantage of P0 waves, tend to make excess inventory investments, some of which are unrelated to firm fundamentals, generate higher sales growth for a given level of investment, and have lower cash collection rates for a given level of accruals. They also find evidence that firms reporting high abnormal accruals in the year of IPO have higher cash collection rates compared to peers. Overall results suggest that managerial decisions on excess purchases and aggressive revenue recognition contribute to IPO underperformance.
Full text: Headnote
Abstract
This paperE examines how operating activities after IPOs contribute to underperformance. We find that firms issuing equity, and those taking advantage of IPO waves, tend to (1) make excess inventory investments, some of which are unrelated to firm fundamentals, (2) generate higher sales growth for a given level of investment, and (3) have lower cash collection rates for a given level of accruals. We also find evidence that firms reporting high abnormal accruals in the year of IPO have higher cash collection rates compared to peers. Our overall results suggest that managerial decisions on excess purchases and aggressive revenue recognition contribute to IPO underperformance.
Keywords: IPO, New List, Growth, Market to Book, Operating Activities
JEL Codes: G1O,M41,M43
(ProQuest: ... denotes formulae omitted.)
Introduction
This paper examines the relation between the operating activities of newly public firms and post-IPO underperformance. IPO underperformance is one of the most widely studied new issues puzzle. Prior research has found it difficult to reconcile why newly public firms-who report high capital expenditures, high sales growth, and high earnings-tend to underperform, as measured by their low cash flows and low stock returns. We examine the operating activities of these firms to test several hypotheses for underperformance. We find evidence that newly public firms make excess investments in inventory and capital expenditures, generate higher sales growth for a given level of inventory, but generate lower subsequent cash flows from their accruals. Our tests support the hypothesis that managers take advantage of windows of opportunity in the IPO market. Our findings do not support the accounting window dressing hypothesis.
We focus on the operating activities of newly public firms for several reasons. First, previous research has noted
that firms issuing equity continue to invest heavily in projects, even while their performance deteriorates
(Loughran and Ritter, 1997); this is argued to be attributed to managers taking on negative NPV projects.
Examination of managerial decisions throughout the operating cycle allows us to isolate the type of projects that
Being translated, please wait..
