Earnings Management and Non-Audit Service to IPO

I examine manager’s incentive to manipulate earnings using real activities (the real earning management). I also investigate the relation between non-audit service and earning management. The result shows that IPOs use methods of real earning managements. Interestingly, they have the tendency to use the real earning management after their initially stock listings because the negative consequences of the real earning management is more severe than accrual based management. This result is also provided in the additional analysis which is used measures of the performance matched discretionary accruals and the performance matched real earning management. Overall, the paper documents that IPOs use methods of earning management as substitutes (Zang, 2008) around time of IPO. The result shows that BIG can't play the role in reductions of discretionary accruals with controlling variables. Using IPO observations during period of -1 year to +1 year of IPO (year 0 is initially listed year of IPO) I find the significantly negative relation between the real earning management and non-audit service as dummy variable (also with measures with the fee level of non-audit service using sample of IPO with the provision of non-audit service). Also, I examine the association of non-audit service and earning management with controlling effect of the revised legislation of banned certain NAS. However, the result is found no significant relation of earning management with provision of non-audit service after the regulation. It may be sensitive in characteristics in non-audit service and types of non-audit service.