Research On The Impact Of Changes In The Pricing Mechanism Of IPOs On The Quality Of Accounting Earnings

Since 1990s, earnings management during the initial public offering (IPO) process has drawn worldwide attention from accounting and financial circles. Obviously, earnings management behaviour of IPO companies would mislead investors’judgment with companies’real value in a certain extent, damage the interests of investors, and interfere of capital market resources allocation function.Chinese IPO system has been under developing and unceasing marketization process, on December 10th 2004, China securities regulatory commission issued ’The notice of the several issues related to IPO pricing inquiry system (trial)’ which regulated from January 1st 2005 IPO companies and their sponsors should determine stock issuance price via enquiry from inquiry agencies, this regulation declared that Chinese IPO pricing system enter into inquiry system stage. The official publication of the regulation should be a major reform of the administrative pricing system which had been lasted for ten years, and it is also implied that Chinese IPO system transferred from the administrative controls stage to the marketization of stage. However, due to rigid space which ruled by the administrative guidance set a preliminary upper limit, inquiry agencies cannot simply consider about the real market positioning of new issue as their international counterparts, therefore the regulation cannot be considered as real marketization. May 22nd 2009, the CSRC published ’Guiding Opinions of CSRC on Further Reform And Improvement of The System of Issue of New Shares’, one of the major topic is marketization reform with guidance of IPO administrative P/E, the publication of this regulation means enhancement of the IPO marketization.This paper divided the development of IPO system into 3 stages:the period of Administration-based pricing before Jan.l 2005, (2) the period of primitive Market-based pricing from Jan 2005 to June 2009, (3) the period of Market-based pricing after June 2009. IPO prospectus issued from Jan.51989 to Oct 21 2010 and the first-3-year information of all successfully listed companies are collected as the data to analyze the difference of the earning’s quality in different periods in the view of earnings management, accounting conservatism and Earnings Persistence. It was found that the earning’s quality of listed companies are significantly improved through the 3 periods.Considering the background of Chinese capital market for its specialty in system, this paper carried out a further research of the differences between SOEs and private companies. It was found that the earnings quality of both SOEs and private companies are improved from period to period, the earnings quality of central SOEs are better than local SOEs and the earnings quality of local SOEs are better than private companies.