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Seasoned equity offerings (SEOS) and meeting/beating earnings benchmarks by Australian firms: evidence of earnings management and subsequent firm performance

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posted on 2023-01-18, 18:06 authored by Md. Hamid Ullah Bhuiyan
Submission note: A thesis submitted in total fulfilment of the requirements for the degree of Doctor of Philosophy to the School of Business, Faculty of Law and Management, La Trobe University, Bundoora.

Extant research indicates that managers engage in earnings manipulation to manage reported earnings and value of the firm to maximize specific private benefits and to mislead some of firm’s investors. This study examines whether the managers of Australian firms engage in earnings manipulation in the form of real earnings management (REM) and accrual earnings management (AEM) around the seasoned equity offerings (SEOs) and across the years they are meeting and/or beating earnings benchmarks. This dissertation also investigates subsequent firm performance outcomes of SEO offerings, meeting/beating earnings benchmarks, partaking in REM and AEM activities, involving in REM activities during the offering-years, and employing REM and AEM activities to meet/beat earnings thresholds. These research questions are particularly relevant to Australia as a result of introduction of regulatory reform in Australia, which is Corporate Law Economic Reform Program (CLERP 9) to protect investors’ interest after a series high profile corporate collapses in Australia. Using a 4287 firm-year observations (excluding Financial and Utility Industry Sectors) over the 9 years from 2002 to 2010, cross-sectional REM models developed by Dechow et al. (1998) and implemented by Roychowdhury (2006) are used to estimate the proxies for REM (abnormal cash flow from operations, abnormal production costs, and abnormal discretionary expenses) and the modified Jones (1991) model is used to measure the proxy for AEM (abnormal accruals). Using a sample of 829 SEOs over the 7 years from 2004 to 2010, and controlling for other determinants of REM and AEM activities, this study finds that (i) managers of Australian SEO firms tend to engage in REM and AEM activities in the SEO-years, and earnings management activity is greater in these years relative to non-issuing years of SEO firms, (ii) firms undertaking SEOs perform significantly negatively in terms of post-offering earnings performance, (iii) engaging in production cost manipulation activities and accrual based earnings management results in inferior subsequent firm performance, and (iv) partaking in REM and AEM activities in the offering-year has no incremental influence on the negative earnings experienced by SEO firms in the post-offering period. This examination also reveals that (v) meeting and beating earnings benchmarks is associated with both REM and AEM activities, (vi) beating zero earnings benchmark has impact on subsequent firm performance, and (vii) meeting/beating earnings benchmarks employing greater levels of overall REM activities has a significant negative influence on future firm performance, however, using accrual manipulation to meet/beat earnings thresholds has significant positive influence on firms future earnings performance outcomes. The outcomes of this dissertation indicates that engaging in REM and AEM activities during the offering-year conveys no new information about future earnings performance, whereas, using REM and AEM in meeting/beating earnings benchmarks conveys information about subsequent firm performance outcomes.


Center or Department

Faculty of Law and Management. School of Business.

Thesis type

  • Ph. D.

Awarding institution

La Trobe University

Year Awarded


Rights Statement

The thesis author retains all proprietary rights (such as copyright and patent rights) over the content of this thesis, and has granted La Trobe University permission to reproduce and communicate this version of the thesis. The author has declared that any third party copyright material contained within the thesis made available here is reproduced and communicated with permission. If you believe that any material has been made available without permission of the copyright owner please contact us with the details.

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