Earnings management and performance of Malaysian IPO firms / Wan Razazila Wan Abdullah

This dissertation examines several issues related to the initial public offering (IPO) firms in Malaysia. The main aim of this study is to investigate whether IPO firms in Malaysia that goes public during the period of 1997-1998 have reported earnings in excess of cash flows by taking positive accruals. A sample of 84 IPO firms listed on the KLSE during that period is used in this study. The results reported in this study suggest that IPOs in Malaysia during the period 19971998 manage their earnings upwards prior to public listing. This study views that IPO firms experienced poor long-run performance after being listed on the Kuala Lumpur Stock Exchange. In measuring the IPOs share price performance, the study measures abnormal returns using a buy-and-hold return approach. Abnormal returns are calculated based on the difference between the holding period returns of sample firms and control companies. Control companies matched by industry and size are selected from the population of non-equity offering in that particular year. The statistical tests performed confirmed that the IPO firms experience a significant positive abnormal return during the initial period and a significant poor long run share price performance relative to non-IPO firms after being listed on the KLSE. However, there is no evidence found in the study to suggest that the pre offering earnings management is able to predict the post issue on negative abnormal returns. Thus, the results reveal that Malaysian IPOs, which manage earnings upward prior to public listing, may not have the intention to mislead their investors.