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Earnings management and underperformance after seasoned equity offerings: a cross-country study

Solomon Opare (School of Accountancy, Massey University, Auckland, New Zealand)
Muhammad Houqe (School of Accountancy, Massey University, Auckland, New Zealand)
Tony van Zijl (Victoria University of Wellington, Wellington, New Zealand)

International Journal of Managerial Finance

ISSN: 1743-9132

Article publication date: 14 December 2022

Issue publication date: 24 October 2023




This purpose of this study is to examine the association between earnings management (accruals earnings management (AEM) and/or real activities manipulation (RAM)) and firm underperformance following seasoned equity offerings (SEOs) using cross-country data.


The study applies ordinary least squares regression analyses to a sample of 11,764 observations on firms from 22 countries over the period from 2005 to 2017. The methods include weighted least squares regression, sub-sampling approach and alternative measures of firm performance, earnings management and legal regime for robustness tests as well as a two-stage least squares instrumental variable (IV) approach to address endogeneity concerns.


The results suggest that RAM has a greater negative impact on post-SEO performance than AEM. The result is economically significant for RAM only. The results also reveal that the negative impact of earnings management, in particular RAM, on post-SEO performance is greater in countries with a strong legal regime than in other countries.

Practical implications

Earnings management around SEOs has important implications for investors, regulators and policymakers. The study suggests that policymakers should improve the current legal conditions to promote fairness in the equity market.


The results from the cross-country data support earlier results from single-country studies on the impact of earnings management on post-SEO performance. The study also provides new evidence on the variation in the impact of earnings management according to the strength of the legal regime operating in a country.



The authors would like to thank the two anonymous reviewers and the Editor, Professor Alfred Yawson, for their helpful comments.

Funding: This research did not receive any specific grant from funding agencies in the public, commercial or not-for-profit sectors.


Opare, S., Houqe, M. and van Zijl, T. (2023), "Earnings management and underperformance after seasoned equity offerings: a cross-country study", International Journal of Managerial Finance, Vol. 19 No. 5, pp. 1053-1075.



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