英文摘要 |
We employ the theoretical framework of extended functional fixation hypothesis (EFFH) addressed by Hand (1990) to investigate how investors' sophistication could affect the strategy of earnings management during seasoned equity offerings (SEOs). The EFFH proposes that a firm's stock price can either be set by a sophisticated or unsophisticated marginal investor, depending on the relative proportion of the firm's stock he holds. With this knowledge in mind, managers would engage in earnings management for the purposes of either misleading the market or communicating inside information according to the degree of shareholder sophistication. We categorize the sampled firms into two groups according to the proportion of ownership held by qualified foreign institutional investors (QFII), which serves as the proxy for sophisticated investors. Our empirical results show that when a firm is faced mostly with naïve investors, its discretionary accruals (DA) tend to increase before SEOs and then begin to drop subsequent to SEOs. This is a strong indication that managers who face naïve investors tend to engage in earnings management as an opportunistic behavior for the purpose of misleading the market. On the other hand, the discretionary accruals (DA) are negative before SEOs issuance and reach the peak at the issuance year. They remain at higher levels thereafter for those firms that have a larger proportion of QFII. This evidence indicates that firms facing sophisticated investors tend to employ conservative accounting policies prior to SEOs issuance for other purposes than misleading the market. We hypothesized that the purposes of employing conservative accounting standards is to communicate inside information to the market so that the stock prices may be fairly valuated. In sum, the strategies of engaging in earnings management are much more subtle than what earlier studies have proposed. The employment of discretionary accruals could be either to mislead the market or convey inside information, dependent on the degree of shareholder sophistication. |