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Author Lewis, Melissa F

Title Assessing earnings quality at the IPO : the role of reputable investment banks / Melissa F. Lewis
Published Ann Arbor, Mich. : University Microfilms International, 200-

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Location Call no. Vol. Availability
 WATERFT BUSINESS  332.6453 Lew/Aeq  AVAILABLE
Description x, 73 pages ; 28 cm
Summary Investors in initial public offering (IPO) firms face a dilemma: Should they rely on earnings containing income-increasing accruals when valuing IPOs? On one hand, these accruals could reflect information about managers' expectations of future cash flows. On the other hand, managers could use the discretion inherent in current accounting standards to opportunistically inflate earnings in hopes of increasing the offer price. This paper explores the extent to which reputable investment banks help resolve uncertainty about the quality of IPO firms' income-increasing accruals and resulting earnings. Investment bankers have the experience, knowledge, and incentives to accurately assess the quality of IPO firms' earnings and correctly price earnings components. Accordingly, I predict and find that income-increasing accruals are of higher quality for firms whose managers employ a reputable investment bank than for firms whose managers employ a less reputable investment bank. Further, IPO market participants capitalize earnings and positive accruals at higher multiples when firms employ reputable investment banks. The higher multiples applied to the earnings and income-increasing accruals of firms with reputable investment banks do not appear to be "over-priced" as Fama and French factor regressions show no evidence of long-run underperformance for the sample as a whole, or subsets of the sample with reputable investment bank representation. Overall, my findings are consistent with a sophisticated market for IPO securities, and suggest that market participants, on average, recognize and price differential earnings quality at the IPO
Notes Published on demand
Thesis (Ph.D.)--Indiana University, Kelley School of Business, 2007
Bibliography Includes bibliograhical references (pages 50-54)
Subject Going public (Securities)
Investment banking.
Genre/Form Academic theses.
Author Indiana University, Bloomington. Kelley School of Business