In order to boost the exit value, it is not uncommon that issuers report earnings in excess of cash flow generated by its operations at the initial public offering (IPO). The discretionary activity of performing earnings management can mislead investors about the intrinsic value of the newly public firm. Within this study, I examine how earnings management will affect the stock market reaction upon the lockup expiration date, the IPO adjustable offering size, and how the backing of private equity or venture capital (PEVC) affects earnings management tendencies within IPO firms. Using a unique, hand-collected dataset of 56 Swedish newly public firms from 2007 - 2014, I show that IPO firms (i) manage their earnings at the full fiscal year prior to the IPO and that earnings management will result in a negative stock market reaction upon the lockup expiration date. More importantly, I show that (ii) high adjustable offerings do not affect this relationship indicating that earnings management has no impact on the adjustable part of the offering size within IPOs. I also find that (iii) IPO firms backed by PEVC firms are more eager to manipulate their earnings, and (iv) highly reputable PEVC firms do not mitigate the manipulation of earnings within IPO firms. The results taken together suggest that studying the stock market reaction on the lockup expiration date is important for manipulative IPO firm detection, and that a participation in IPOs backed by PEVC firms must be done with caution.

There is an ethical dilemma and a legal issue of earnings management and insider trading, and a risk of it affecting the accuracy of financial markets. The use of earnings management leads to an information asymmetry between the corporate management and the financial markets. This paper investigates how earnings management affects insider trading and whether insider trading is a good information source about earnings quality and future performance. Studying companies believed to have conducted earnings management on Nasdaq OMX Nordic Stock Exchange (Stockholm) from 2005 through 2014 indicates that: (1) insiders do not sell shares after managing earnings upwards; (2) the relationship between insider selling and future earnings performance is positive, contradicting agency theory and previous research; (3) the market’s reaction to the earnings announcement one year after suspected earnings management is positive for firms where insiders have sold shares, and vice versa. Taken together, our results are not in line with those of previous studies conducted on other markets. This is likely to depend on the unique Swedish setting with the existence of endowment insurances, where insiders can trade shares without having to disclose their transactions to the market. Because of this, we argue that insider trading is not an adequate signal about Swedish firms’ earnings quality and future performance. We therefor further emphasize the importance of a change in the Swedish legislation, in order to insure the accuracy of financial markets and to protect other investors.

Bakgrund: Sedan 2010 är revisionsplikten för de små företagen i Sverige avskaffad vilket innebär att småföretagare idag har valmöjlighet för frivillig revision. Den främsta anledningen till att slopa revisionsplikten var att revisionen är en onödig, tidskrävande och kostsam aktivitet för småföretag. Många företag som berördes av reformen använde sig av den valmöjligheten vilket medför att 60 procent av småföretag i nuläget har valt bort revision. Dock finns det fortfarande 40 procent som finner att revisionen tillför en nytta och betraktar den som en viktig del av verksamheten. Detta tyder på att företag har delade åsikter om revisionens betydelse och värde och därmed olika benägenhet att välja att genomgå revision. Syfte: Syftet med studien är att få en ökad förståelse för hur revision och småföretagens beslut att behålla revision skapar mening och undersöka bakomliggande meningsskapandefaktorer till valet att fortsätta att ha revision. Metod: Studien har baserats på en kvalitativ forskningsmetod. Undersökningsobjekten utgjordes av sex småföretag inom byggbranschen belägna i Västra Götaland och Jönköpings län. Sex semistrukturerade besöksintervjuer med företagsägare genomfördes för att undersöka fenomenet. Det empiriska materialet har sedan analyserats utifrån analysmodellen för att kunna besvara studiens problemformulering. Slutsats: Respondenterna har en positiv attityd till revision och har olika anledningar till att behålla den. Främsta anledningarna att välja revision är egen trygghet och strävan efter att förvalta verksamheten lagenligt. Vi finner att resultatet visar att revision är en meningsskapande aktivitet som leder till att företaget behåller den och därmed skapar mening med sitt val. Företagen skapar mening med sitt val genom att sända positiva signaler till omgivningen och därmed differentierar sig och skapar en identitet. Tidigare erfarenheter är den främsta meningsskapande faktorn som påverkar beslutsfattande som i sin tur leder till att meningen skapas både retrospektivt och prospektivt. / Background: Since 2010 the provision of statutory audit for small enterprises has been abolished in Sweden. In accordance with this new legislation micro entrepreneur now have the choice for voluntary audit. The main reason behind the abolishment of statutory audit was that auditing as an activity was unnecessary, an administrative burden and a financial cost burden to small enterprises. Many of Swedish enterprises that were affected by the reform of statutory audit exemption used this option of choice, currently it has resulted in that 60 percent of small enterprises have chosen not to have audits. This means that 40 percent of enterprises who still keep their audit find benefits of being audited and view it as an important part of business. This indicates that the enterprises have different opinions about the audit’s importance and value, and thus different tendency to choose to undergo a voluntary audit. Purpose: This study aims to have an increased understanding of how audits and micro entrepreneurs' decision of keeping audits makes sense and to examine the underlying factors of making sense for choosing to continue to have an audit. Methods: This study has a qualitative research method. The respondents of the survey consisted of sex small enterprises in the construction industry, seated in Västra Götaland and Jönköpings County (län). To explore the phenomenon of the study, semi-structured interviews were carried out with owners of six small enterprises. The empirical data was then analysed from our analysis model to answer the study’s research question. Conclusions: The respondents have a positive attitude to audits and have different reasons to keep it. The main reasons behind the choice to continue with audits, are own security and the aim to conduct legal business. We find that the results show that audit is a sense making activity which results in why enterprises keep it, and therefore making sense with their choice of audit. Enterprises make sense of their choice by sending positive signals to environment, and therefore differentiate themselves and make identity. Previous experience is the main factor of sense making which affects the decision-making which in turn leads to that meaning is both retrospective and prospective.

This study examines the association between changes in accounting performance resulting from mandated adoption of International Financial Reporting Standards (IFRS) and managerial incentives to engage in opportunistic equity issuance. Based on 2,719 Australian and the European Union firms that are required to adopt IFRS starting in 2005, I find that firms disclosing a material decline in reported net income under IFRS relative to reported net income under local standards are revalued downwards, while firms disclosing a material improvement in reported net income under IFRS relative to reported net income under local standards are revalued upwards. This indicates that relative to financial statements prepared according to local accounting standards, financial statements under IFRS convey new information that impacts market value. Building on the market timing hypothesis, I find that managers exploit their private information about the effects of changes in accounting standards on accounting performance and that managers strategically time equity issuance before their firms disclose those effects. In particular, during the three-year window prior to a firm disclosing the financial statement effects of IFRS adoption, the firm’s likelihood and size of equity issuance are negatively associated with the change in reported net income resulting from IFRS adoption. This is consistent with the prediction that firms whose reported performance is negatively affected by mandated changes in accounting standards are more likely to issue equity and issue a larger volume of equity in advance of the disclosure of those negative effects. The association between equity issuance and the relative decline in accounting performance resulting from IFRS adoption is robust to alternative definitions of equity issuers, specifications and measures of accounting performance, and changes in sample composition. I find some evidence that equity issuance is positively associated with earnings forecast optimism, where earnings forecast optimism is another proxy for information asymmetry arising from mandatory adoption of IFRS. / Thesis (Ph.D, Management) -- Queen's University, 2008-07-10 17:39:27.512

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This paper examines the effects of disclosures on information asymmetry by studying bid-ask spreads around independent management forecasts and earnings announcements released with forecasts. The findings suggest the disclosure of independent management forecasts increase information asymmetry in the market rather than resolving it. Regulation FD has reduced the overall level of information asymmetry in the market with respect to both earnings announcements and management forecasts although it has a greater effect on management forecasts, post-forecast spreads. Closer analysis reveals that when “good news” forecasts and separated from “bad news” independent management forecasts, good news management forecasts decrease information asymmetry. Since initial tests demonstrated that management forecasts increase information asymmetry, these findings suggests that the magnitude of the effect of bad news management forecasts is greater than that of good news forecasts.

The objective of this study is to understand information asymmetry concept with its causes and consequences and its effects on insurance business especially in Turkey. Perfect markets, moral hazard, adverse selection, market signaling, and guarantee concepts are important to have a better examination of asymmetric information as a whole and there are many examples of these concepts faced in insurance sector. In order to have a closer look to Turkish insurance business, some insurance companies are chosen randomly and their general performance, types of information they demand their customers to give and the relation between them are studied. Consequently, it is seen that both companies and customers suffer from asymmetric information. However, there are, of course, some solution suggestions to decrease information asymmetry. A number of these solutions are easy to apply in Turkish market and some others are not that applicable. Therefore, it can be said that the important thing here is to find adaptable solutions not to lengthen the list and waste time by suggesting brilliant but useless ones.

This thesis presents three essays on credit ratings of regulated utilities, dividend signaling, and asymmetric information and security issuances and repurchases. Chapter 2 investigates the practices of credit rating agencies by using the regulated utility industry as a natural testing ground. Following deregulation and the Enron scandal, the general opinion among industry professionals is that utilities are being punished by rating agencies. Contrary to this popular belief, we find that the utility credit ratings are significantly higher compared to those of other firms, and this significance is more pronounced in the post-deregulation period. Although rating agencies often cite regulatory reasons for placing utilities on negative credit watches, these firms ratings are rarely downgraded after being placed on negative watches. Chapter 3 provides a rational explanation for the disappearing dividend trend. Dividends serve as signaling device and, under models of dividend signaling under information asymmetry, cost of signaling increases with volatility of firms cash flows. Declining propensities to pay dividends imply that (1) information asymmetries have become lower and/or (2) cost of signaling has increased. We find evidence consistent with both. In particular, firms with higher information asymmetries and lower stock price informativeness are more likely to pay dividends: the increasing stock price informativeness has made dividend signaling less valuable, and a significant portion of disappearing dividend trend could be explained by rising risk and increasing stock price informativeness. Chapter 4 investigates the motivations for debt and equity issuances and repurchases in hot and cold markets. I find that firms issue equity in hot markets to reduce adverse selection costs associated with asymmetric information. In particular, firms issuing equity in hot markets possess high asymmetric information while firms issuing equity in cold markets possess less severe asymmetric information. I also find that credit ratings and market-to-book ratios could explain why firms might repurchase equity or issue debt in hot markets rather than issue equity: firms with high credit ratings and low market-to-book ratios are more likely to issue debt even in hot equity markets, and firms with low market-to-book ratios are more likely to repurchase equity in any market. / Finance

本研究主要探討主貸行和參貸行之間的資訊不對稱如何影響聯貸案的定價。利用模型推導出在有資訊訊號和較低債權人保護的體制下，最適的聯貸案利率會較高；利用1982年到2009年的全球聯貸案資料進行實證，發現實證結果與理論預期一致。 / This paper explores how information asymmetry between lead arrangers and participant lenders affects syndicated loan pricing. The model shows that the optimal loan spread is higher in regimes with informative signal and lower creditor rights protection. Using global syndicated loan data from 1982 to 2009, I show that the empirical results are consistent with the predictions of the model.

El tema de esta tesis es Banca, concentrándose específicamente en el tema de Crisis Bancarias. El Capitulo 1 estudia las crisis bancarias que ocurren debido a problemas de asimetría de información entre los tomadores de préstamos. Dentro del marco propuesto, asimetría de información significa que los títulos sobre préstamos que el banco vende pueden tornarse ilíquidos y/o que pueden ocurrir caídas súbitas en el precio de los títulos. El Capitulo 2 analiza la política de resolución de crisis y muestra como las acciones de un Prestamista de Última Instancia durante una crisis pueden afectar la incidencia/probabilidad de sufrir futuras crisis bancarias. En particular, un Prestamista de Última Instancia más generoso puede contribuir a reducir la frecuencia de las crisis dado que los bancos eligiran proyectos más seguros. El ultimo capitulo de esta tesis vuelve a considerar el tema de la venta de préstamos, a través de títulos emitidos por el banco. En este capítulo se derivan aquellas condiciones para las cuales el mercado es sostenible, en el caso de que exista daño moral por parte de los bancos que realizan los préstamos. En una sección empírica mostramos que hay una relación negativa entre la fracción de préstamos retenida y la probabilidad de default. / The theme of this thesis is Banking, concentrating on banking crises. The first chapter looks at banking crises which occur because of problems of asymmetric information about borrowers. The asymmetric information means that the loan securities that the bank sells can become illiquid and there are sudden drops in securities prices. The second chapter looks at a crisis resolution policy and shows how the actions of the Lender of Last Resort in a crisis can affect the incidence of future banking crises, in particular that a more generous Lender of Last Resort can lead less frequent crises as banks choose safer projects. The final paper returns to the theme of loan sales. We derive conditions for when the market is sustainable in the face of moral hazard by the bank which makes the loan. In an empirical section we show that there is a negative relationship between the fraction of a loan retained and the probability of default