An Empirical Study of Factors Affecting Sudden Deteriorations in Performance of Newly Listed Companies in China

Using the three Jones models, this paper analyzes earnings management in newly listed companies in China. We find that the use of earnings management practices is prevalent among firms in China and these practices increase the possibility of a sudden deterioration in performance (SDP) for the firm. The characteristics of the firm’s underwriter or sponsor also significantly impact on the possibility of a SDP. Finally, we find that the financial data of newly listed companies are not good indicators of a SDP