The Journal of Applied Business Research – January/February 2014 Volume 30, Number 1

Earnings Management And Initial Public

Offerings: An Empirical Analysis
Tarek Miloud, Inseec Alpes-Savoie Business School, France

ABSTRACT

This paper studies the presence of earnings management in initial public offerings (IPOs) of
French firms. When the aim of earnings management is to increase the attractiveness of the
offered shares it needs to go undetected by market participants. This invisibility makes earnings
management difficult to detect in the income statement and the balance sheet, thus investors would
benefit from other information that reveals the probability of earnings management. Managers’
and owners’ incentives for managing earnings are used to assess the likelihood that earnings
management is used before the IPO. Earnings management is tested by observing time-series
profiles of accruals. The sample consists of French firms that went public in the years 1995 to
2008 on the Euronext Paris Exchange. The results suggest that IPO firms with the highest
discretionary current accruals significantly underperformed, compared to equivalent companies
in the third year following the IPOs.

Keywords: Earnings Management; IPO; Accruals; Ownership Structure

1. INTRODUCTION

H
ealy and Wahlen (1999) define earnings management as an activity where managers use judgment to
alter financial reports, either to mislead stakeholders or to influence contractual outcomes.
Compared to bad accounting or simple randomness, the distinguishing feature of earnings
management is the presence of intent. Before a typical initial public offering (IPO), managers possess a
combination of incentives and possibilities to manage earnings. More and more literature has documented the
presence of earnings management in IPO firms. It suggests that the differences that are remarked in opportunistic
behavior are the result of managers’ incentives for managing earnings and their possibilities to do it without
detection.

Friedlan (1994) reports show that IPO issuers make income-increasing discretionary accruals in the
financial statements released before the offering. This evidence is consistent with the hypothesis that issuers believe
that financial statement information affects IPO offering prices. Moreover, according to Teoh et al. (1998c) these
accruals tend to reverse in later reporting periods. They also found that abnormal accruals during the year of IPOs
are significantly negatively related to post-offer stock returns. Furthermore, Aharony, Lee and Wong (2000)
identified evidence of earnings manipulation among listed firms prior to their IPOs. Moreover, DuCharme,
Malatesta and Sefcik (2004) show that abnormal accruals around IPOs are negatively related to post-offer returns
and positively related to initial firm value. Indeed, Xie (2001) reports that abnormal accruals are negatively
correlated with subsequent stock returns in the firms. Therefore, the relationship between abnormal accruals and
post-offer stock returns appears to be part of a more general empirical regularity. Chen and Yuan (2004) found that
listed firms manage earnings to satisfy the ROE requirements for rights issues, and argue that such earnings
management behavior is associated with mis-allocation of capital resources. Chen, Firth, Gao and Rui (2006) found
that various aspects of corporate governance (e.g., the characteristics of boards of directors and ownership) are
associated with the incidence of corporate financial fraud.

These results raise serious questions regarding market efficiency with respect to widely available
accounting information. They are consistent with the interpretation that IPOs firms opportunistically manage
earnings upward around IPO dates, temporarily inflating their stock prices, which later fall as less favorable earnings
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The Journal of Applied Business Research – January/February 2014 Volume 30, Number 1

information arrives after the offer. The main task of this paper is to examine whether the ownership type of the IPO
firms is associated with their propensity for earnings management behavior. Furthermore, this paper is related to the
previous studies investigating and predicting the performance of IPO firms (e.g. Brav & Gompers, 1997; Hensler,
Rutherford & Springer, 1997; Jain & Kini, 2000; Bhabra & Pettway, 2003; Bessler & Thies, 2007). We purpose in
this paper to demonstrate that French IPO Companies practice “earnings management,” so the main research
questions and some of the findings, can be summarized as:

 Why? What are the motivations to “manage” earnings? We present some evidence that French companies
(US firms), manage their numbers to: (i) avoid losses, (ii) sustain recent performance, (iii) guarantee
income “smoothing” and (iv) satisfy debt covenants.
 How? How earnings are “managed”? It will be shown that earnings are managed by discretionary
adjustment (discretionary accruals), as well by as non-operational accounts.
 What are effects? What are the consequences of this opportunistic behavior? Does it incur costs to
stakeholders? Does Earnings management influence the Stock price? We observed that companies, on
average, in the short run can “fool” the market by implementing practices of “earnings management”, but
in the long run they will underperform. These results have important implications to reflect about the
correct allocation of capital.

In the rest of the paper, we will present a brief summary of previous related empirical research designs on
the topic of earnings management. The theoretical framework on earnings management around IPOs and the
hypotheses are presented in the third section. In the following we will present our sample and methodologies,
whereas the empirical analysis is mentioned in Section 5. Section 6 concludes the paper.

2. THEORY AND LITERATURE REVUE

2.1 Definitions and Main Empirical Results on the Earnings Management

Mulford and Comiskey (2005) argue that earnings are considered as the most vital indicators of accounting
numbers; thus, all types of accounting manipulations are concerned with company earnings. Creative accounting,
aggressive accounting, big bath accounting, the street earnings or window dressing, all refer to earnings
management. Tirole (2006) admits that earnings management is a means used by the management to modify the
external assessment of the firm’s performance. Yet, definitions radically oppose each other when describing goals
and effects of earnings management. Dechow and Skinner (2000) and Scott (2011) argue that earnings management
is a way, for the management, to share private information on the future prospects of the company, which is
beneficial to investors. Schrand and Zechman (2012) suggest that earnings management is like a “slippery slope to
fraud.”

But probably the most popular and extensive definition in the literature remains the one given by Healy and
Wahlen (1999) (p. 368): Earnings management “occurs when managers use judgment in financial reporting and in
structuring transactions to alter financial reports to either mislead some stakeholders about the underlying economic
performance of the company, or to influence contractual outcomes that depend on reported accounting numbers.”
These definitions lead to argue that earnings management is the choice by a manager of accounting policies, or other
actions including voluntary earnings forecasting, voluntary disclosure, and estimation of accruals, to intentionally
affect the earnings. Most studies in the earnings management literature have focused on three research designs: (i)
based on aggregate accruals; (ii) based on specific accruals and (iii) based on the distribution of earnings.

2.1.1 Aggregate Accrual Models

Testing the earnings management requires to measure management’s discretion over earnings. Hence, the
discretionary accrual model helps the researcher to split total accruals into discretionary accruals and non-
discretionary components. The discretionary accruals can raise/reduce the net income, without any link to any
operational activity of the company. They are positive or negative exclusively at the discretion of the management.
When the manager raises/reduces accruals at his discretion, he has to reverse the effect; this fact is explained by the
double-entry bookkeeping. To face this problem, Healy (1985) and Deangelo (1986) used total accruals and
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The Journal of Applied Business Research – January/February 2014 Volume 30, Number 1

changes in total accrual as proxies of discretion of earnings management. Jones (1991) introduced a regression
approach to control non-discretionary factors that can influence accruals specifying a linear relation between total
accrual and changes in sales and property, plant and equipment.

The Jones’ model assumes that non-discretionary accruals depend on the change in revenues and the level
of property, plant and equipment. The rationale is that firms’ working capital requirements depend on sales, while
its depreciation depends on the level of property. Once the model is estimated (either in time-series or cross–
sectional), the researcher uses forecasted values to estimate non-discretionary accrual. With this model any accrual
not treated as non-discretionary is included as discretionary accruals. Most of the critics to Jones model are based in
the misclassification problem, which reduces the power of the test. In the best scenario, lower the power of the
research design, but in a worst situation, can cause the researcher to conclude that there is earnings management
when none actually exists. Comparing five commonly used models of discretionary accrual, Dechow et al. (1995)
conclude that the modified version of the Jones model offer the best results. However, the authors recognize that
none of these models offers a really powerful method. So it may be that the “state of art” is not very satisfying.

2.1.2 Specific Accruals

The second approach in the literature is to model a specific accrual as Mchichols and Wilson (1988),
Petroni (1992), Beaver and McNichols (1998). They focus on industry settings in which a single accrual requires
substantial judgment. The authors concentrate on more specific industries or in the analysis of specific accruals,
where modeling opportunities are richer, even though this model can be applied only in a very limited number of
firms, due to a lack of specific data which are not always available. This model is applied to analyze financial
institution, and in general to demonstrate earnings management.

2.1.3 Frequency Distribution Approach

Burgstaler and Dichev (1997) and Degeroge, Patel and Zeckhaiser (1999) develop a third approach by
examining the statistical properties of earnings to identify behavior that influences earnings management. These
works focus on the behavior of earnings around a specific benchmark, such as zero or a prior quarter earnings, to
test whether the incidence of amounts above and below the benchmark. Furthermore, they test whether the
incidence of amounts above and below the benchmarks are distributed smoothly or reflect discontinuities due to
exercise of discretion. Compared to other methods, the most important advantage of this approach is not necessary
to estimate the discretionary accruals. Furthermore, this approach can help to have an idea of how many firms use
this kind of instrument to proportionate earnings management. Nevertheless, this method has some disadvantages,
for instance, it neither captures the magnitude of earnings management, nor identifies which method is used to
manage earnings.

2.2 Earnings Management through Real Activities Manipulations

We have seen that earnings management is a decision taken by the manager with a direct impact on cash
flow. Dechow and Skinner (2000), Healy and Wahlen (1999) and Fudenberg and Tirole (1995) identified the
companies that seem to engage in the following activities: [i] decreasing the expenses in R&D, [ii] decreasing of
general and administrative expenses, [iii] the timing of sales by offering discounts or providing more flexible credit
terms and [iv] the excess production. As with the studies of Durtschi and Easton (2005) and Burgstaler and Dichev
(1997) assume that the discontinuities observed in the distribution of the earnings are real actions taken by
management. They authors observe an increase in operating cash flow nearby zero thresholds. However, their
findings are statistical non-significance test.

According to some researchers, such as Beneish (2001), the earnings management is often difficult to
detect. Relying on Schipper (1989) work, they predict that it is difficult to distinguish between optimal management
decision and willingness to manipulate accounting figures. It is only recently that researchers (Lambert & Sponem,
2005; Graham et al., 2005) based on qualitative studies are then oriented modeling of real earnings management and
that distinguishing the discretionary portion of the non-discretionary variable to handle. Roychowdhury (2006)
works made several contributions which are summarized as follows:

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 in methodological terms: from the study of Dechow, Kothari and Watts (1998), the authors develop a
model to measure normal levels of cash flow from operations, production costs and discretionary spending
(R & D, general, administrative, and advertising expenses). These variables should capture the effect of
actual actions better than accruals.
 in the academic field: the author enriches the literature on earnings management by proving that U.S.
companies handle their real activities to achieve the zero threshold.

For their part, Eldenburg et al. (2011) reported that hospital CEOs in California manage real activities of
their companies either up or down depending on the intended purposes during the year. They found that hospitals
with slightly negative earnings reduce their spending for some ineffective activities such as general expenses,
research expenses and administrative expenses to prevent the publication of losses, while hospitals with slightly
positive earnings decrease asset sales and are rarely audited. Herrmann, Inoue and Thomas (2003), meanwhile,
showed that Japanese companies increased their results through action on their sales when the current operating
results downfall related to management forecasts, and vice versa. Thomas and Zhang (2002) report that the negative
accrual-return relation is mainly due to inventory changes, and interpret this evidence as investors not recognizing
the temporary nature of growth.

Finally, to examine the key factors that motivate the managers of U.S. companies to undertake certain
operational decisions, such as reducing discretionary spending, Graham et al. (2005) conducted a survey with 401
Chief Financial Officers and detailed interviews with 20 CEOs. They observed that interviewers reveal their
willingness to engage in the real earnings management better than to engage in the management of accruals. This
motivation is preferred especially in cases where the real earnings management activities cannot be differentiated
optimal economic decisions, and thus be hardly detected. According to this literature review, we point out that:

 only one study in the French context has examined the phenomenon of real earnings management.
However, most of these works were done in the U.S. context.
 managers engage earnings management by acting on the following real activities: R & D, sales, production,
general, administrative, and advertising expenses.

Figure 1 summarizes the main empirical studies on the two strategies of earnings management, namely: the
accounting earnings and the real earnings management.

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The Journal of Applied Business Research – January/February 2014 Volume 30, Number 1

Measure of the Earnings Management

Accrual Management Cash Management

Accruals Operating Cash-Flow

Accounting Choices Structure of Transactions

 Depreciation  R&D expenses
 Provisions  Production
 Stocks  Advertising costs
 Account adjustments etc.  Reduction of selling prices
 Accounts receivable & suppliers etc.

Accounting Earnings Real Earnings Management

Empirical Studies Empirical Studies

France France
 Janin (2000) Lack of work
United States United States
 Jones (1991)  Roychowdhury (2006)
 Dechow, Sloan and Sweeney (1995)  Eldenburg, Gunny, Hee and Sodersdtrom
 Teoh, Welch and Wong (1998a,b); Teoh, (2011)
Wong and Rao (1998)  Graham, Harvey and Rajgopal (2005)
 Eldenburg, et al. (2011)

Figure 1: Accrual Management and Earnings Management in the Literature

2.3 Detecting Earnings through Discretionary Accruals

How can we measure earnings management? It is not possible to observe earnings management directly.
Therefore, researchers have investigated two venues for earnings management, the choice of accounting methods
and the management of accruals. The most commonly used method for testing earnings management is the
examination of accruals because they are easier to manipulate than cash flows. Abnormal accruals (Abnormal
accruals = Total Accruals – Normal Accruals) are considered as a sign of earnings management. The major
problem in earnings management studies is how to determine if accruals are abnormally high or low. Most models
used to estimate the normal level of accruals base their estimations on the firms’ past accruals or the accruals of
comparable firms. In the literature the normal and abnormal accruals are usually called nondiscretionary and
discretionary accruals. From the literature, we observe that past research in their attempt to study accruals use two
models: Healy (1985) and Deangelo (1986) who use total accruals as a proxy for earnings management while Jones
(1991) and Teoh et al. (1998a,b) who use discretionary accruals as a measure of earnings management. One
possible explanation to exclude non-discretionary accruals is that they are used to reflect the economic conditions
which are not controlled by managers. Discretionary accruals represent managerial interventions into financial
reporting process. Accruals include all adjustments that allow a business to change from a cash basis to an accrual
basis - whether this means allocations, provisions or changes in accounting methods. Changes in working capital
also form part of accruals. The following equation shows the calculation:

Total accruals = earnings – cash flow (from operations)

The trick for researchers is to identify the discretionary component of accruals: non-discretionary and
discretionary components of accruals cannot be directly observed, so it is necessary to develop methods for
estimating the discretionary accruals. What researchers want to know can be shown as:

Discretionary accruals + Non-discretionary accruals = Earnings – Cash Flow (from operations)

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Researchers have developed several techniques to estimate discretionary accruals. One approach uses total
accruals as an estimate of discretionary accruals and looks for earnings management by comparing the amount of
accruals in different firms. A second method examines differences in accruals between periods. For example, a
researcher might either assume that non-discretionary accruals do not change between periods and attribute
differences in total accruals to management discretion, or, the researcher might adjust the estimate of non-
discretionary accruals to reflect economic changes such as growth. A third approach uses regression techniques to
separate the discretionary and non-discretionary components of accruals. The most popular discretionary model is
the standard Jones (1991) model. This model is able to decompose accruals into discretionary and non-discretionary
accruals. When changes in sales are adjusted for the change in receivables, standard Jones model becomes a
modified Jones model, which is proposed by Dechow et al. (1995). The modified model is designed to reduce the
measurement error of discretionary accruals when discretion is applied over sale. The study by Dechow et al.
(1995) finds that a modified Jones model provides the most powerful test of earnings management compared to the
standard Jones industry model. However, Yoon and Miller (2002) document that the Modified Jones model is not
effective in measuring discretionary accruals for Korean firms.

Unlike the study of Dechow et al. (1995), Guay, Kothari and Watts (1996) conclude that both the Jones and
modified Jones models provide reliable estimates of discretionary accruals. Peasnell, Pope and Young (2000) find
that Jones and modified Jones models are able to generate powerful tests for earnings management and are more
powerful for the revenue and bad debt manipulations than non-bad debt manipulations. In tests comparing the
power of the modified-Jones model with that of the standard Jones model, Dechow et al. (1995) find that the first
procedure is indeed significantly better at detecting sales-based earnings management. Previous research examines
the specification and power of various discretionary-accrual models, but not that of performance-matched accrual
models. Dechow et al. (1995) (p. 193) conclude: “all models reject the null hypothesis of no earnings management
at rates exceeding the specified test levels when applied to samples of firms with extreme financial performance.”
Guay et al. (1996) explain that firms with extreme performance are more likely to engage in earnings management
and that discretionary accrual models correctly detect it as such. Alternatively, the discretionary accrual models
might be misspecified when applied to samples of firms with extreme performances, in part because performance
and estimated discretionary accruals exhibit a mechanical relation. To the extent that the concern is model
misspecification, and because earnings management research typically examines non-random samples (e.g., samples
that firms self-select into by, for example, changing auditors), earnings management studies must employ means of
mitigating the misspecification to reduce the likelihood of incorrect inferences. In this vein, the use of a control
sample to address specification issues is common in the literature.

3. EARNINGS MANAGEMENT PRIOR TO IPOS AND ITS EFFECT ON FIRM PERFORMANCE

Neill, Pourciau and Schaefer (1995) report that, proceeds from the IPO using income-increasing (liberal),
for example borrowing aggressively from future earnings, are relatively higher than those using income-decreasing
(conservative) methods when analyzing accounting method choice. Thus, there is incentive for issuing firms to
manage earnings to raise enough capital when the investors foresee the share price to increase. In addition,
managers can personally earn abnormal profits when they sell their own shares.

Managers attempt to manipulate earnings in order to influence short-term stock price performance and also
for job security. However, according to Abdullah, Espenlaubb and Strongb (2009), aggressive management of
earnings through income-increasing accounting adjustments leads investors to be overly optimistic about the issuer’s
prospect and thus overvalues the new issues. When these high pre-issue earnings are not sustained over time,
disappointed investors will subsequently underprice the firm. Inevitably, according to Rangan (1998), managers
will continue to manage earnings in the subsequent two quarters after the offering announcement for two reasons: (i)
an earnings reversal immediately after the offering and the associated price drop could invite lawsuits against the
firm and its manager; (ii) firms enter into lock-up agreements with their underwriters that prevent their insiders from
selling their holdings until 90 to 180 days after the offering date.

3.1 Earnings Management in IPOs

Before firms go public, there is no market value for reference. The major purpose of firms making IPOs is
to raise cash. Thus, firms have strong incentives to manage earnings. Firms with better figures in financial
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reporting have the opportunity to set higher offering prices. Such incentive also plays an active role when firms are
to issue seasoned equity offerings (SEO), since firms also make SEO to raise cash. On a voluntary disclosure basis,
Clarkson, Dontoh, Richardson and Sefcik (1992) empirically tested the hypothesis that earnings forecasts
communicate firms’ prospectuses. They found evidence that the Canadian market positively responds to such
earnings forecasts that conveys good news.

Many past literatures such as Loughran and Ritter (1997), Rangan (1998) and Teoh et al. (1998a) provide
evidence that CEOs manage earnings during IPOs in the US market. These studies report that earnings management
during IPOs causes poor long run stock performance. During IPO, reported earnings are high due to high
discretionary accruals component. There is a negative relation between discretionary accruals and post-offering
abnormal stock returns. The high discretionary accruals tend to predict worse stock price performance. Stock price
under-perform, as investors are disappointed with subsequent earnings decline. Teoh et al. (1998a) in their
hypothesis predict worse performance for issuers with usually large income-increasing accounting adjustments prior
to the offering. Their interesting research reveals that issuers in the most ‘aggressive’ quartile underperform the
matched non-issuers by 7.5% in the three years following the issue year and also they underperform conservative
issuers. In contrast, issuers conservatively outperform their match.

Pre-offering shareholders of issuing firms benefit from misevaluations of share prices that are caused by
earnings management. Rangan (1998) also provides evidence to reject the notion that issuing firms are simply
timing their offerings after quarters of high earnings and are not manipulating earnings, and that at least a portion of
the discretionary accruals represents deliberate earnings management. Rangan’s study differs from Loughran and
Ritter (1997) and Teoh et al. (1998a) to short term stock returns following the offering year and not long-term
performance. According to Shivakumar (2000), managers of offering firms manipulate earnings not to influence
investor valuations but as a rational response to the expected negative market reaction at the announcement. As
expected with discretionary accruals, the general pattern of pre-issue earnings management, for instance higher
discretionary accrual quartile, shows better pre-issue earnings performance than the lower discretionary current
accruals and cannot predict post-issue stock return under performance.

Other studies have examined earnings reporting around IPOs of common stock. Among others, Teoh et al.
(1998b), Yoon and Miller (2002) and Abdullah et al. (2009) all report empirical evidence that suggests earnings are
managed in anticipation of going public. It is unclear if the measures of earnings management employed in this
research can truly reflect the deceptive nature of manipulation of revenues and expenses intended to enhance
reported earnings (and, thereby, IPO proceeds), or reflective of normal operating, investing and financing decisions
of IPO firms. It is difficult to distinguish legitimate earnings reporting from subtly misleading practices, and there is
no generally accepted method of doing so. If it’s costly for management to mislead investors, then discretionary
accounting choices might be focused on increasing the information content of reported earnings. Ritter (1991)
provides empirical evidence that IPO firms’ stock returns are significantly lower than those of a matched sample of
non-IPO firms over the three-year period after offering. He concluded that “investors are periodically
overoptimistic about the earnings potential of young growth companies.” Following Ritter’s (1991) view, it may be
likely that such long-run market underperformance of IPOs is not about investors’ misperception of the firms’ future
potential, but rather a result of earnings management during the process of firms going public. His study implies
that entrepreneurs mislead investors by manipulating earnings and investors react negatively. This finding is further
supported by Jain and Kini (1994) who examine accounting measures of operating performance of IPO firms. They
find that firms exhibit a decline in operating performance after their IPOs as a result of not being able to further
borrow from future high expectations of future earnings growth that are not subsequently fulfilled.

Teoh et al. (1998b) also investigate earnings management during the year of IPO and subsequent stock
returns. They find a significant negative association between abnormal accruals measured during the year of offer
and stock returns over a three-year post IPO period. Teoh et al. (1998b) report issuers with unusual high accruals in
the IPO year experience poor stock return performance in the three following years. IPO issuers in the most
‘aggressive’ quartile of earnings’ managers have a three-year aftermarket stock return of approximately 20% less
than IPO issuers in the most ‘conservative’ quartile. According to DuCharme et al. (2004), pre-IPO abnormal
accruals are positively related to initial firm value. Their results also confirm the earlier studies: abnormal accruals

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during the offer year are significantly negatively related to subsequent form stock returns. In addition, they also find
that abnormal accruals in the previous year are also significantly negatively related to subsequent performance.

3.2 Discretionary Accruals in IPO

The research based on U.S. data provides strong evidence of discretionary accruals in IPO firms. Friedlan
(1994) found that firms manage earnings upwards to get higher offer prices prior to IPO through income-increasing
accruals that affect the offering price. Teoh et al. (1998a) found that firms with abnormally high accruals before the
IPO experience poor market performance of their stock returns in the following three years. Along a similar line to
the earnings management of IPOs, Teoh et al. (1998c) document a negative relation between pre-issue discretionary
accruals and post-issue earnings and stock returns that suggests firms also manage earnings by means of
discretionary current accruals before making SEOs.

Additionally, Teoh et al. (1998a) showed that discretionary accruals can be linked to companies’ long term
stock market performance and thus challenged the efficient market hypothesis, that the market fails to take into
account the probability of manipulation into account. When they grouped firms by their amount of discretionary
accruals before the IPO, they found that firms in the quartile with the lowest discretionary accruals (negative)
outperformed the market by about 4% over three years, whereas firms in the quartile with the highest discretionary
accruals underperformed the market by about 25%.

Furthermore, Aharony et al. (2000) identified evidence of earnings manipulation among listed firms prior
to their IPOS. Moreover, DuCharme et al. (2004) showed that abnormal accruals around IPOs are negatively related
to post-offer returns and positively related to initial firm value. In fact, Xie (2001) reports that abnormal accruals
are negatively correlated with subsequent stock returns in the firms. Therefore, the relationship between abnormal
accruals and post-offer stock returns appears to be part of a more general empirical regularity. Chen and Yuan
(2004) found that listed firms manage earnings to satisfy the ROE requirements for rights issues, and argue that such
earnings management behavior is associated with the misallocation of capital resources.

Darrough and Rangan (2005) found that in addition to the discretionary current accruals, managers also
manipulate R&D spending to increase the IPO offer price. Chen et al. (2006) found that various aspects of corporate
governance (e.g., boardroom characteristics and ownership) are associated with the incidence of corporate financial
fraud.

3.3 Hypothesis Development

3.3.1 Ownership Structure and Earnings Management

Previous studies brought evidence that ownership structures influence the monitoring mechanism a
company uses, including the monitoring of earnings management activities. Wang (2006) stated that ownership
structures have important effects on reported earnings. However, the influence of insiders, institutional investors,
and block-holders on the ability of managers to manipulate earnings remains a controversial issue. Morck, Shleifer
and Vishny (1988) argued that greater ownership would provide managers with deeper entrenchment and, therefore,
greater scope for opportunistic behavior.

The literature discriminates between inside and outside holders. For example, Dempsey, Hunt and
Schroeder (1993) distinguished between owner-managed firms, in which managers own substantial blocks of the
firms’ outstanding stocks, and external-controlled-firms, in which one or more external block-holders own a
substantial block of the firm’s stocks while the managers do not substantially own the firm’s stocks. The authors
suggested that large ownership by management is the underlying factor that reduces earnings management, whereas
the existence of external block-holders does not seem to significantly affect earnings management. In
addition,Warfield, Wild and Wild (1995) provide evidence that managerial ownership is negatively related to the
size of earnings management. Warfield et al. (1995) also found evidence that the inverse relationship between
managerial ownership and absolute abnormal accruals becomes moderated in the case of regulated firms. They
suggest that the regulations lead to monitoring of the managers’ choices for making accrual adjustments to manage
earnings.
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The manner in which earnings management is associated with institutional ownership is an empirical issue.
Existing literature posits two competing views on institutional investors. The first group of literature such as that of
Wahal and McConnell (2000) and Velury and Jenkins (2006) among many others, provides evidence indicating that
institutions are playing an active role in monitoring and disciplining managerial discretion. The second group of
studies such as those of Porter (1992), Bushee (1998) and Grace and Koh (2005) alleges that frequent trading and
fragmented ownership discourage institutions from becoming actively involved in the corporate governance of their
portfolio firms. Koh (2007) extended the literature by classifying institutional investors into transient or long-term
ones according to their investment horizons in order to examine the association between an institutional investor
type and firms’ discretionary earnings management strategies in two mutually exclusive settings – firms that (do
not) use accruals to meet/beat earnings targets. The results support the view that long-term institutional investors
constrain accruals management among firms that manage earnings to meet/beat earnings benchmarks. This suggests
long-term institutional investors can mitigate aggressive earnings management among these firms. Transient
institutional ownership is not systematically associated with aggressive earnings management and is evident only
among firms that manage earnings to meet/beat their earnings benchmarks.

Sánchez-Ballesta and García-Meca (2007) examined the relationship between ownership structure and
discretionary accruals for a sample of Spanish non-financial companies. Their results support the hypothesis that
insider ownership contributes to the constraining of earnings management when the proportion of shares held by
insiders is not too high. However, when insiders own a large percentage of the shares, they are entrenched and the
relation between insider ownership and discretionary accruals reverses. Gabrielsen, Gramlich and Plenborg (2002)
found a positive, but non-significant relationship between managerial ownership and discretionary accruals in a
sample of Danish firms, which they attributed to the different institutional settings between the US and Denmark.
To date, only one study was conducted on earnings management in French IPOs. In addition to showing that
earnings management was present in French IPOs, Cormier and Martinez (2006) investigated whether there was any
difference in earnings management behavior in IPOs from 2000 and 2002. The study investigated managers’
motivations to engage in earnings management through purposeful interventions in the setting of discretionary
accruals during the IPO process. The results indicated that earnings management is influenced by a firm’s
contractual and governance constraints. The above arguments conform to the following testable hypotheses:

Hypothesis (1): French IPO companies exhibit non-zero earnings management in the IPO year.
Hypothesis (2): Earnings management by French IPO companies is related to pre-IPO owners’ level of post-IPO
retained ownership.

3.3.2 Earnings Management and the Long-Term Performance

An excellent review of IPO studies by Ritter and Welch (2002) reveals the existence of severe aftermarket
underperformance for issuers. This phenomenon was been reported in the U.S. and in other countries. Teoh et al.
(1998 a,b) and DuCharme et al. (2004) provide evidence that earnings management can at least in part explain the
aftermarket performance of public equity issues. Chou, Gombola and Liu (2006) investigated whether the earnings
management explanation for the long-term stock performance of public issues also holds for equity private issues.
Their results suggest that Discretionary Current Accruals (DCA) predict the cross-sectional variation in post-IPO
long-term stock return performance. ‘Aggressive’ earnings management companies, with higher income-increasing
accruals in the IPO year, experience poorer stock return performance in the 3 post-IPO years than ‘conservative’
earnings management companies. They argued that investors are misled by the high earnings numbers reported at
the time of IPOs and so put too high a price on the new issues. Roosenboom, van der Goot and Mertens (2003)
found a similar negative relationship between the size of the DCA in the IPO year and stock returns over the
following 3 years. This negative relationship between earnings management and subsequent stock return
performance is used to arguing that opportunistic IPO earnings management has the potential to (at least partially)
explain the long-term stock market return underperformance of IPOs. We reexamined this hypothesis for our IPO
French sample. This paper is one of the few studies available that examines IPOs in France. These observations
and arguments lead to our third hypothesis:

Hypothesis (3): Higher income-increasing earnings management by French IPO companies shows a poorer long-
term stock return performance than by more ‘conservative’ counterparts.

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4. DATA SAMPLE AND RESEARCH DESIGN

4.1 Sample Selection and Data

To test our hypotheses, we have compiled a list of all IPOs that were floated on the Paris Stock Exchange1
from January 1, 1995 to December 31, 2008. From the original list of 806 IPOs, we excluded readmissions and
transfers from the main market to the official market, flotations of units, and investment trusts. We excluded all
IPOs that represented demergers, corporate spin-offs, reverse takeovers, and equity reorganizations, whose board
development processes differ from founder-involved IPOs. We also excluded investment and acquisition vehicles
because their governance systems were extremely simplified and their boards resembled investment committees of
private equity firms. These processes of elimination excluded 238 observations.

The final sample included 568 IPOs from 1995 to 2008. Data was collected from the information provided
in the IPO listing prospectuses and annual reports. Stock returns and financial data come from Datastream. The
accrual variables for measuring discretionary current accruals during the IPO year (year 0) were hand-collected from
the first post-IPO published annual reports, which included the financial information for both pre- and post-IPO
years. Consistent with Teoh et al. (1998a), the first published annual reports after the IPO were used due to
incomplete data in the prospectus financial statements.

4.2 Measuring the Level of Earnings Management

Chou et al. (2006) noted that earnings management can be accomplished through recognition of revenues
or delaying recognition of expenses relative to cash flows. It can also be accomplished through changes in
accounting methods and in capital structure. Differences between revenues recognized and cash received, or
between expenses recognized and cash expenditures create accruals or deferrals. Since the basis of earnings
management lies in the difference between cash flows and earnings, analyzing accruals, which is the difference
between cash flows and earnings, provides insight into earnings management practices.

Not all accrual items are equally subject to manipulation or management. Long-term accrual and deferral
items, which are accounting adjustments to long-term assets or liabilities, such as depreciation, are difficult to
manage or adjust since accounting choices for long-term assets remain consistent over several years. Short-term
accruals, which are accounting adjustments to short term assets, such as the change in accounts receivable, are easier
to manage since accounting choices are made over a shorter term. Because short-term accruals are more easily
subject to management, the focus of our study, like that of similar studies, is on short-term accruals. Computation of
accruals in our study is based on definitions of accruals by Perry and Williams (1994) that were also used by Teoh et
al. (1998a,b). Perry and Williams (1994) compute total accruals as the change in non-cash working capital
(excluding current maturities of long-term debt less total depreciation expense for the current period). Their
definition is similar to Jones (1991), differing by the exclusion of the adjustment she made for income taxes. Perry
and Williams (1994) included income tax in their model because income tax accrual can be an important component
of an earnings management strategy.

Earnings management is revealed by an abnormal level of accruals relative to the firm’s business activity.
In the same way as Teoh et al. (1998a,b) and DuCharme et al. (2004), a regression model has been used to estimate
the expected accruals. Deviations from the expected accruals could be subject to management discretion and could
be attributed to earning management. Teoh et al. (1998a,b) call these deviations discretionary current accruals.

We followed the methodology of Teoh et al. (1998a,b) to estimate the expected current accruals by a
modification of the Jones (1991) model. Expected accruals, called nondiscretionary current accruals by Teoh et al.
(1998a, 1998b), are estimated from a cross-sectional regression of current accruals in a given year on the change in
sales using an estimation sample that includes all firms with the same two-digit SIC code as the private equity
issuer, but excludes the issuer and other private equity issuers. To ensure that the estimated coefficients obtained
1
Now known as the NYSE Euronext (NYX) with the merger of equals between the leading U.S. and pan-European securities trading exchanges
the holding company of the New York Stock Exchange and Euronext N.V, the Paris-based first European integrated stock exchange was formed
in September 2000 by the merger of the Paris, Brussels, and Amsterdam exchanges.
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from the regression are not biased, the number of two-digit SIC code peers is required to be at least 30. To reduce
heteroskedasticity in the data, we scaled all variables in the regression by total assets. We ran the following cross-
sectional regression using the estimation sample:

CAj, t / TAj, t-1 = α0 (1/TAj, t-1) + α1 (ΔSalesj, t / TAj, t-1) + εj, t (1)

where CA is current accruals, TA is total assets, Δ Sales is the change in sales, j is firm j in the estimation sample,
and t indicates year t. Nondiscretionary (or expected) current accruals for private placement firm i, is estimated as:

(2)

where is the estimated intercept, is the slope coefficient for private placement firm, i, and ΔTRi,t is the change
in trade receivables for year t for private placement firm i. The increase in trade receivables is subtracted from the
change in sales to allow, for the possibility of credit sales manipulation by the issuer.

Discretionary current accruals, DCAi,t, for private placement firm i for year t is then estimated as:

DCAi,t = CAi,t / TAi,t–1 – NDCAi,t (3)

4.3 Empirical Methods

To investigate patterns of DCA in the years following the IPO and the influence of economic conditions,
we conducted a univariate analysis. Then, we use a multivariate specification to investigate different hypotheses,
while checking for additional factors that may influence earnings management. The level of IPO-year earnings
management is regressed on experimental variables relating to the level of retained share ownership and to several
additional control variables: auditor reputation, underwriter prestige, company age, size of underpricing, the degree
of leverage, company size, and the board of listing. The estimated regression model is:

DCAYR0,i = α0 + β1RetOwn + β2AauditR + β3UnderW + β4log(1 + IPO Age) + β5Underpricing +

β6Lev + β7lnMV + εi (4)

where:

 DCAYR0 = IPO year discretionary current accruals as a percentage of lagged total assets
 RetOwn = percentage of shares retained by insiders (original owners) after the IPO
 AuditR = dummy variable = 1 if auditor is Big 5 (Arthur Andersen, Deloitte, Ernst and Young, KPMG,
Price Waterhouse Coopers, or their pre-merger equivalents),and 0 otherwise
 UnderW = dummy variable = 1 for prestigious underwriter, and 0 otherwise
 lgAge = log(1 + IPO Age): Age = company age in years
 Underpricing = adjusted initial return (%) measured by comparing the share price (Pt) at the end of the first
day of trading with the offer price (P0): [(Pt−P0)/P0] – [(Indext − Index0) / Index0]
 LEV = financial leverage ratio (debt-to-equity ratio), at the time of the IPO
 lnMV = natural log of the market value at the time of the IPO computed as the number of shares
outstanding times the closing price on the first trading day
 εi = error term

Significance levels are computed as White’s t-statistics to correct for heteroskedasticity.

4.4 Measure of Long-Term Stock Market Performance

Fama (1998) indicated that long-term returns are sensitive to the expected return model used to measure the
abnormal returns and the statistical tests conducted. The author points out that the buy-and-hold abnormal return

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method can be problematic because the long-term buy-and-hold returns distribution is skewed. Additionally, stock
returns of firms announcing a specific corporate event are usually correlated, as pointed out by Fama (1998), Lyon,
Barber and Tsai (1999), among others. Mitchell and Stafford (2000) showed that the cross-dependence problem of
overlapping event-firm stock returns can inflate t-statistics of BHAR. To address the cross-sectional dependence
problem, we have used the monthly calendar-time portfolio approach, recommended by Fama (1998) and Mitchell
and Stafford (2000), to estimate both of the three-factor models. Portfolios of private placements are formed
monthly, in calendar time. The regression model is:

Rp,t–Rft = αp + βp(Rmt–Rft) + spSMBt + hpHMLt + εp,t (5)

where Rp,t is the return on portfolio p in month t, Rft is the return on the Treasury bills (BTF, Bons du Trésor à court
terme) in month t, Rmt is the return on a market index in month t, SMBt is the difference in the returns of a portfolio
of small and large stocks in month t, and HMLt is the difference in the returns of a portfolio of high book-to-market
stocks and low book-to-market stocks in month t, and εp,t is the error term for portfolio p in month t. The estimate of
the intercept coefficient (αp) provides a test of the null hypothesis of zero average abnormal return.

5. EMPIRICAL RESULTS

5.1 Descriptive Statistics

Table 1 presents descriptive statistics for the full sample of 568 French IPOs. Mean (Median) Market value
for our sample is €975.36 million (€ 280.20 million). Operating performance prior to the IPO, measured by
operating income by sales (OI/Sales), is about 18%.

Table 1: Descriptive Statistics for 568 French IPOs between 1995 and 2008
Mean Median Minimum Maximum
Market value at flotation (M€) 975.36 31.99 402 121,563
Sales (M€) 280.20 13.79 225 17,143
Total assets (M$) 564.34 164.9 27.23 40,872
Leverage (%): Total debt/equity 25.12 19.44 9.65 85,20
Operating income/Sales (%) 18.53 15.85 -2.76 68.34
Age 9.97 8.45 0.93 34
Underpricing (%) 16.48 12.26 -35.56 156
Retained ownership (%) 65.56 67.80 32.50 73.25
Auditor – prestigious (%) 71.60
Underwriter – prestigious 68.45
DCA in IPO year (%) 2,78*** 2,28*** -15.32 25.45
*, **, and *** represent statistical significance at the 10%, 5%, and 1% levels, respectively.

The average age of French IPOs is 10 years, slightly higher than 9 years for the US companies as
mentioned by Teoh et al. (1998b), but considerably lower than the 35 years for Dutch companies as reported by
Roosenboom et al. (2003). The mean (Median) level of underpricing is 25%, which is higher than the 18.4% level
in U.S markets mentioned by Ibbotson, Sindelar and Ritter (1988) but lower than the 27.7% German level proved by
Ljungqvist (1997). The mean retained ownership by the original owners is broadly similar to 65.56% reported by
Jain and Kini (1994). Over 71% of the IPO companies choose Big 5 auditors and more than 68% choose prestigious
underwriters.

5.2 Univariate Analysis

We test the first hypothesis using univariate analysis, Table 2 reports the median and the mean of
discretionary current accruals (DCA) estimated by the modified Jones (1991) model, for the 3 years before and after
the IPO. The median DCA for the issue year is 2.3% which declined to 0.5% in the year following the IPO (year +
1), to -0.8% (year + 2) and to -0.3% (year + 3). The result for year 0 and + 1 are statistically significant at 5% and
10%, respectively.

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Table 2: Discretionary Current Accruals for IPOs between 1995 and 2008
Year –3 –2 –1 0 (Issue year) +1 +2 +3
Median –0.002 0.008 –0.012 0.023 0.005 –0.008 –0.003
p-value (Wilcoxon) (0.06) (0.51) (0.75) (2.52) (0.89) (0.18) (0.04)
Mean 0.086 –0.050 –0.601 0.028 –0.480 –0.200 0.087
p-value (t-test) (0.43) (0.36) (0.28) (2.34) (0.67) (0.71) (0.39)

In the first year after the IPO, the median DCA of 0.5% remains income-increasing, which suggests that
French IPO companies continue to manage their earning upward after the IPO. We saw some evidence that accruals
reverse 2 years after the IPO year, the same result was observed for the United States markets by Teoh et al.
(1998a).

5.4 Multivariate Analysis

Table 3 presents results for the OLS multivariate regression, used for testing the second hypothesis. The
percentage of shares retained by the original owners has a positive relationship to earnings management and is
statistically significant at 1%. Owners who maintain a low (high) proportion of stakes in the capital post-IPO
engage less (more) in income-increasing earnings management. This result contradicts the notion that owners
maximize their short-term wealth by using income-increasing accruals to elevate the IPO price. Similarly, the
positive relationship between retained ownership and DCA is inconsistent with a characterization where owners of
high-quality companies signal quality by underpricing shares sold at the IPO (potentially using income-reducing
accruals).

Table 3: Determinants of Earnings Management for 568 French IPOs between 1995 and 2008
Variables Coefficient t-stat
Constant -19.06 -2.75***
RetOwn 0.438 3.15***
AauditR -5.76 -2.74***
UnderW -1.44 -0.86
log(1 + IPO Age) 0.98 -1.70*
Underpricing 0.010 0.64
Lev -0.122 -1.37
lnMV 2.38 1.45
n 568
Adjusted R2 0.103
F 3.90***
*, **, and *** represent statistical significance at the 10%, 5%, and 1% levels, respectively.

The positive relation between DCA and retained ownership is consistent with incentives and
aforementioned arguments. Hence, original owners who sell a relatively large proportion of their ownership interest
apparently forego the increase in immediate wealth that might accrue from a higher offer price as a result of income-
increasing earnings management. This leads the original ownership to ensure a high level of underpricing to
oversubscription to the offer, thereby enabling shares to be allocated to many small investors. According to Brennan
and Franks (1997), this reduces the threat of takeover and monitoring by large block-holders. Our results are
consistent with those of Alavi, Pham and Pham (2008), who find that managers are reluctant to allocate shares to
large new shareholders when control retention is an important consideration. There is strong evidence of a positive
relationship between retained share ownership and income–increasing earnings management, consistent with the
notion that post-IPO control may be more important than short-term wealth gains.

The coefficient for auditor’ reputation is statistically significant at 1%, this implies that companies audited
by Big 5 auditors reduce the level of income-increasing earnings management, consistent with Chen et al. (2006).
This suggests that either high-quality auditors are more likely to detect or deter earnings management, or managers
of high-quality IPOs, with a reduced need to manage earnings, signal the quality by appointing high-quality auditors.
The firm age is significant and negatively correlated to the earnings management. This suggests less uncertainty
about the value of an IPO for a company with a longer operating history, thereby reducing the need or the
opportunity to use income-increase DCA to manage earnings at the IPO time. This is significant for the underwriter
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reputation, underpricing, company size and the leverage level. The insignificance of the underpricing variable
suggests that DCA are not related to the first day returns. We can affirm that earnings management is generally not
undertaken for short-term opportunistic reasons in Euronext-NYSE Paris. Our results contrast with those of
Aharony et al. (2000), who found that earnings management is more pronounced for smaller companies and for
those with large financial leverage.

5.5 Earnings Management and Post-IPO Stock Market Performance

In this section, we have examined the monthly abnormal returns (MARs) estimated from the three-factor
model of Fama and French (1993). As mentioned previously, calendar-time portfolios represent an important
improvement over the traditional event methodology, which assumes independence of individual-firm abnormal
returns. Table 4 reports the three-factor time series regression results for the three years following the issue. The
intercept from the Fama and French (1993) three factors model regression is negative (-1.26% and -1.28%) and
significant (t-statistic = -2.09 and -2.15). The significantly positive HML and SMB loadings means that the French
IPOs examined are small and value stocks; this confirms our previous observations.

Table 4: Calendar-Time Three-Factor Model for the Sample of IPOs from 1995-2008
(0, + 12 month) (0, + 24 month) (0, + 36 month)
Value- Equal- Value- Equal- Value- Equal-
Weighted Weighted Weighted Weighted Weighted Weighted
α –0.0136** –0.022** –0.0132** –0.0138** –0.0126** –0.0128**
(–2.13) (–2.31) (–2.29) (–2.45) (–2.09) (–2.15)
β 1.148*** 1.136*** 1.121*** 1.121*** 1.011** 1.441**
(7.57) (8.32) (4.46) (4.46) (2.24) (2.29)
s 0.781*** 1.366*** 0.940*** 1.409*** 1.276** 1.540**
(2.87) (3.24) (2.63) (2.78) (2.38) (2.34)
h –0.489*** –0.306*** –0.502*** –0.620*** –0.417*** –0.571***
(–4.67) (–3.08) (–5.09) (–4.90) (–4.21) (–5.21)

Adjusted R2 0.1625 0.1562 0.1786 0.1680 0.1303 0.1450

* **
, , and *** represent statistical significance at the 10%, 5%, and 1% levels, respectively.

Table 5 contains post-issue average abnormal returns for DCA quartiles of IPO firms, relative to the three-
factor model of Fama and French (1993). As shown in the table, there was significant underperformance only for
firms in the most aggressive quartile (i.e., the quartile with the highest DCA). For the study period, the estimated
alpha coefficient (i.e., average MAE) is -0.0174, which is significant at the 0.01 level (t = -3.43). This MAR implies
a three-year abnormal return of -54.1%. The estimated alpha coefficients shown for Quartiles 2, 3, and 4 are
negative, but not significant for all cases. A monotonic relation between the DCA quartile and the estimated alpha
coefficient is not evident in the results shown in Table 5. Consequently, there is little evidence of a negative relation
between DCA and post-issue stock returns apart from evidence of the worst stock performance being indicated for
the most aggressive DCA quartile.

The difference between stock performance for the most aggressive DCA quartile and other quartiles is
substantial. For example, the implied three-year abnormal return for the most aggressive quartile is -54.1%, much
worse than the implied three-year abnormal returns of -8.3%, -25.4%, and -6.6% for Quartiles 2, 3, and 4,
respectively. The abnormal return for the most aggressive quartile is less than the abnormal return for other
quartiles by at least 28% and as much as 48% for three years.

Table 5: MARs and Three-Year ARs Relative to 3-Factor Model for DCA Quartiles
Quartile 1 Quartile 2 Quartile 3 Quartile 4
Alpha coefficient -0.0174 -0.0024 -0.0081 -0.0019
WLS t-stat. (-3.43)*** (-0.38) (-1.23) (-0.25)
Implied 3-year abnormal returns -54.1% -8.3% -25.4% -6.6%
The regression coefficients reported in the table are estimated using weighted least squares for value-weighted portfolios. The implied three-year
abnormal returns are estimated as: (1 + alpha coefficient)36 -1. *, **, and *** represent statistical significance at the 10%, 5%, and 1% levels,
respectively.

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Overall, results shown in Table 5 show substantial evidence of underperformance for firms that practice
aggressive earnings management at the time of an IPO. The evidence is robust and consistent for the two time
periods examined and a variety of return measures and benchmarks were used. The results suggest that
underperformance following an IPO is caused by the poor stock price performance of firms practicing aggressive
earnings management. These results also indicate that any investor’s optimism about prospects of private equity
issuing firms might be at least partially the result of aggressive earnings management on the part of a minority of
firms.

6. CONCLUSIONS

The purpose of our research focuses on the question of earnings management in the French IPOs. More
specifically, our work examines how managers’ and owners’ incentives for managing earnings are used to assess the
likelihood that earnings management is used before the IPO. Earnings management is tested by observing time-
series profiles of accruals using a sample of 866 observations between 1995 and 2008. This paper is the first
detailed, large sample study of the long term operating performance and earnings management of French IPO
companies.

The main results of this study can be summarized as follows. First, the comparison of pre-and post-IPO
accounting-based operating performance in terms of levels and changes provides several interesting findings.
Second, there is moderate evidence supporting the view that the average IPO company in France underperforms
benchmark companies over the three year post-IPO period. However, there is strong evidence of declining
performance in the IPO year and up to three years following the IPO. Third, the year-to-year analysis reveals that
decline in performance is greater in the year immediately following the IPO. This finding is consistent with the
results of prior studies documenting the long term underperformance of IPOs. Results also confirm that the
deterioration in the post-IPO operating performance is due to earnings management by IPO managers at the time of
going public.

Analysis of the results leads us to verify that the French companies manage their sales to reach a few
planned objectives during the fiscal year. This confirms the commitment of managers to engage in real earnings
management while acting on the sales of the year. However, our findings need to be interpreted with some reserves
since, as any research work, this study has limits. First, our research does not provide a more detailed list of all the
activities that can be used by managers during a potential real earnings management activity. A more complete
discussion of other types of real activities is left for future research, such as production and R&D. Second, the
possibility that our model used to estimate discretionary accruals does not capture with efficiency all the necessary
aspects to a robust estimation.

AUTHOR INFORMATION

Tarek Miloud is a Professor of Accounting and Finance at INSEEC Alpes-Savoie Business School. In his current
position, Professor Tarek Miloud teaches courses in accounting, corporate finance and financial analysis. Before
joining INSEEC Business School, he held professorial position at the Louvain School of Management, where he
was assistant professor. His primary research areas of interest include corporate governance, earnings management,
financial accounting, financial statement analysis; capital markets; and initial public offering. Professor Miloud is
the author of several books and has published numerous articles in research publications. Professor Miloud received
his Master of Finance degree from Alger University, and his M.B.A. and his Ph.D. in accounting/finance from the
Louvain School of Management. E-mail: tmiloud@inseec.com

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