Detecting ‘window dressing’ behavior among firms that go public in the Athens stock exchange

Abstract

This paper uses income-smoothing methodology in order to examine whether the existence of window dressing behavior affects the operating and market performance of firms that go public in the Athens Stock Exchange (ASE). The results depict that the window dressing behavior is unpopular among Greek IPO firms. The after-market performance of IPO firms in Greece reveals that issuers use underpricing as a means to signal their quality to the market. In addition, the findings posit that investors do not overreact to past earnings growth and that the window dressing assumption is unable to explain the post-issue performance of IPO firms in Greece. Finally, the results indicate that the market exhibits the ability to anticipate intentional income-smoothing behavior and classifies smoothing firms to higher risk classes.