Torpedo Your Competition: Strategic Reporting and Peer Firm IPO

Speaker: Prof. Xiaoyu Yu (Indiana University)

Topic:	Torpedo Your Competition: Strategic Reporting and Peer Firm IPO
Time&Date:	15:00-16:15 pm, 2019/5/24 (Friday)
Venue:	Room 619, Teaching A
Speaker:	Prof. Xiaoyu Yu (Indiana University)
Abstract:	A A firm’s initial public offering (IPO) generates negative externalities to its industry competitors. We show that to mitigate this threat, incumbent firms manage their earnings downwards when their industry peers file for IPOs. The downward accruals reverse if there are no peers attempting an IPO. This effect is stronger if peers pose a bigger threat to the incumbents, if industries are more competitive or informationally opaque, or if the incumbents are more long-term oriented. When incumbents engage in more aggressive downward earnings management, peer firms suffer from lower offer prices, raise smaller amounts of capital, and are more likely to withdraw from the offering; they also invest less, hoard more cash, and experience lower profitability post IPO. By contrast, incumbents benefit from improved operating performance. Our results highlight the role of strategic disclosure on product market competition. Endogeneity of going-public activity and choice of proxies for earnings management and industry classification do not appear to drive our findings.