Using the first private placement of Taiwanese listed firms, this study employs two-stage least square (2SLS) to investigate the determinants of accrual-based earnings management and real earnings management (REM), and explore their influences on post-issue performance through dividing the sample into strategic investor type and non-strategic investor type. The results show that the investor type has a significant influence on the issuers’ REM activities around private placements. Security type, debt ratio, and firm size also affect their pre-issue earnings management behavior. REM activities lead to more significantly reduced long-run performance compared with DCA does. Notably, the impact of REM activities on long-run performance varies with the investor type of private placements. Private placements with strategic investors present an insignificantly negative relationship between pre-issue REM and long-run performance compared with those with non-strategic investors.
Journal of Financial Studies 24(1), pp.55-102 【TSSCI】