China's IPO underpricing-based on a new perspective on earnings management

In this paper IPOs of China's listed companies were studied. The extent of earning management was estimated with a cash flow-return model. By using hypothetical analysis, a multivariate regression model was obtained. Empirical analysis showed significant positive relation between earning management and IPO underpricing, and partial correlation coefficient analysis revealed that the relativity of offering price and reported earning was higher than the relativity of offering price and real earning, and the relativity of first day's closing price and reported earning was higher than the relativity of first day's closing price and real earning. The conclusion of this paper is that the characteristics of China's primary and secondary market system and their resulted behavior differences of investor contributed to the high IPO underpricing.