Cheng, Wang, and Wei (2015) investigate earnings management in initial public offering firms (IPO) in China. The authors select an interesting setting in which to explore a relevant and timely question of earnings management in IPO firms in China. They exploit the recent IPO activity that includes public offerings of both state-owned enterprises (SOEs) and non-state-owned enterprises (NSOEs) to hypothesize that differences in earnings management exist between the groups based on ownership. Differences in incentives and monitoring motivate their expectations. Given the recent surge of Chinese IPOs and the growing importance of the capital markets in China, it is critical to better understand the institutional setting, managerial incentives, and other factors associated with accessing the capital markets and raising capital.
My discussion proceeds as follows. Section II provides a brief overview of the research questions, summary of findings, and the relevance of the research. Section III discusses the motivation and...