Earnings Management Around Seasoned Equity Offerings: Evidence from the Nordic Markets

Sammanfattning

In this study we examine whether publicly listed Nordic firms engage in earnings management during the fiscal year of conducting a seasoned equity offering. Using data from 2005 to 2022, we apply one model to detect accrual-based earnings management and one model to capture real earnings management. The association between seasoned equity offerings and the earnings management measures is evaluated through univariate tests and multivariate regressions. We find no evidence suggesting that firms increase reported earnings through discretionary accruals in the seasoned equity offering year. Instead, our results provide partial support for the use of real earnings management, particularly through sales-related manipulation, as indicated by a significant decline in abnormal cash flow from operations. In contrast, we find no evidence of abnormally high production costs, suggesting no use of production-based manipulation. These findings indicate that earnings management around seasoned equity offerings is more likely to be exercised through specific real activities than through discretionary accruals.