Towards Economic Corporate Sustainability in Reporting: What Does Earnings Management around Equity Offerings Mean for Long-Term Performance?

Companies are very important contributors to the long-term sustainable wealth of economies and society. Public companies are likely to be especially important for economic, environmental, and social development. That is why we focus on initial public offerings (IPO). Responsible external reporting relates to the long-term value of companies and influences perceptions of value by stakeholders. This study contributes to the literature not only because it concentrates on earning quality in terms of going public, but it also combines it with another market puzzle, namely, long-term value. Previous conclusions for other markets should not simply be generalized for Poland, as the country has been an emerging market with many public firms controlled by insiders, with a limited role for the equity market and quite considerable bank financing. Using a unique dataset, we find positive and significant discretionary accruals in the IPO year, which may be perceived as a sign of poor earning quality. We also show that these accruals are negatively correlated with subsequent long-term market value for IPOs made before the financial crisis. The general conclusions are robust with respect to the latest innovations in proxies for earnings management, and also to a variety of alternative specifications.