The Relation between Underwriters' Fees and Issuers' Earnings Management

This study investigates how each component of underwriters' fees affects issuers' opportunistic earnings management based on the certification hypothesis in the capital-raising market. The positive relation between underwriters' fees and issuers' earnings management indicates that underwriters with high fees reduce the certification effects and create conflicts of interest, thereby increasing the information asymmetry between issuers and investors. In terms of each component of underwriters' fees, while the management and underwriting fees are positively related to issuers' earnings management, the selling concession is not statistically significant. This study shows the underwriting relationships between underwriters and issuers in the new issue market and earnings management.