Shanghai, China—Xiaoyun Yu, Chair Professor of Finance at the Shanghai Advanced Institute of Finance (SAIF), Shanghai Jiao Tong University (SJTU), has recently co-authored a significant paper published in the prestigious international journal, The Accounting Review. Collaborating with Matthew T. Billett and Mark Ma, the paper is titled “Torpedo Your Competition: Strategic Reporting and Peer Firm IPO.”
Abstract
The study investigates the strategic behaviors incumbent firms adopt in response to the initial public offerings (IPOs) of industry competitors. It reveals that when a peer firm files for an IPO, incumbent firms tend to manage earnings downward, issue more negative management forecasts, and employ a pessimistic disclosure tone to mitigate competitive threats. These negative accruals typically reverse once the competitive threat diminishes. The research finds that such strategic disclosures are particularly pronounced when the costs of manipulation are low and the benefits substantial, especially following negative disclosures by industry leaders. This strategic reporting reduces the valuation multiples of incumbent firms and correlates with negative media sentiment towards IPO firms. Consequently, IPO firms often secure lower offer prices, raise less capital, and face a higher likelihood of withdrawing their offering. Post-IPO, these firms tend to invest less, hoard more cash, and experience reduced profitability, whereas incumbents benefit from increased profitability and market share growth. The findings underscore the impact of strategic reporting on market competition and highlight a novel cost associated with going public.
Professor Profile
Dr. Yu is a Chair Professor of Finance at Shanghai Advanced Institute of Finance (SAIF) at Shanghai Jiao Tong University, a research member of the European Corporate Governance Institute (ECGI), and a fellow of the Asian Bureau of Finance and Economic Research (ABFER). Prior to joining SAIF, she was a professor of finance and Arthur M. Weimer Faculty Fellow at the Kelley School of Business, Indiana University.
Professor Yu's research interests are in the areas of theoretical and empirical corporate finance, with a focus on information economics, initial public offering, financial institutions and systems, and political economy of finance. She has published over 20 articles in leading academic journals, including Journal of Finance, Journal of Business, Review of Financial Studies, Journal of Financial and Quantitative Analysis, Management Science, and Journal of Accounting and Economics. Professor Yu is the author and co-author of several book chapters for Social Security Reform in China, and Volume of Finance, Frontiers of Western Research in the Humanities and Social Sciences.
Professor Yu's research has won several awards and has been featured in various media outlets, including the CNBC, New York Times, and Wall Street Journal. She has served as the program chair, track chair, committee member of many top academic conferences. She currently serves as co-editor-in-chief of Pacific-Basin Finance Journal, editor of International Review of Finance, and associate editor of Management Science, Journal of Financial Intermediation, Journal of Corporate Finance, Journal of Banking and Finance, and Journal of Empirical Finance.
Professor Yu received her Ph.D. in Finance from University of Minnesota.
Editor on Duty: Tao Qingxiao