ABSTRACT
The initial public offering (IPO) is a profound change in a company’s life. Among many consequences of being a public rather than a private firm are more stringent information requirements. Market participants seek reliable information, and profits are important indicators in assessing a company’s financial condition. This study examines earnings quality of IPO companies in Poland. It is an important practical and academic issue. We apply a set of methods to discuss accrual-based changes in financial reports and active structuring of real transactions. The research provides evidence that IPO companies boost earnings in the IPO year through accruals. However, accrual-based strategies evolve into more conservative ones after going public. The results suggest that market newcomers also influence real transactions. It seems that they are not only interested in increasing profits in the IPO year but also exhibit a long-term strategy of earnings smoothing. They strive for a trade-off between managing earnings through accruals, cash flows from operations, production costs, and discretionary expenses. The relationship between these possibilities is substitutionary to some extent, with some complementary elements as well.
