Abstract
ABSTRACT Using 12,950 firm-year observations of Chinese listed companies from 2010 to 2019, we find that city-level IPOs have positive spillover effects on real earnings management of regional incumbent firms. We identify the geographical segmentation of the governance role of financial analysts as the underlying explanation. IPOs distract analysts from previously covered regional peers and make them less effective in monitoring earnings manipulation through real actions. The findings are driven mainly by firms experiencing reduced analyst attention and weaker for firms monitored by other types of governance mechanisms. We rule out alternative explanations of intraindustry spillover effect or resource competition.
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