Accrual and Real Earnings Management and the Reputation of Nominated Advisors Around IPOs : The Experience of the UK Alternative Investment Market

This paper investigates whether the reputation of the Nominated Advisor (Nomad) impacts accrual and real earnings management of Initial Public Offering (IPO) firms on the Alternative Investment Market (AIM) of the London Stock Exchange in the UK. While role of Nomads on AIM market is a significant determinant to ensure to the integrity of the financial reporting quality of their advisee firms, to date, there has been no analysis of the impact of Nomads on such reporting activities. This paper finds evidence that more reputable Nomads on the AIM market play a significant role to constrain the use of accrual-based and real-based earnings management during the IPO year by their advisee IPO firms. This evidence is robust, controlling for endogeneity and selection issue. In addition, the results show that IPO firms with more reputable Nomads experience a better long-run stock return performance and a lower failure rate in the following periods