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Siew Hong Teoh, Ivo Welch, and T.J. Wong found evidence of earnings management around Initial Public Offerings. 

First, the authors estimate accruals for companies using a factor model; next, they measured the difference between the actual accruals and the accruals that were estimated by the factor model.  They call the difference “discretionary accruals” and use it as a proxy for the degree to which management has manipulated earnings.

The quartile of companies that were most aggressive with discretionary accruals underperformed the most conservative quartile by more than 15% in the three-years after the IPO’s first full year earnings report.

This suggests that investors fail to appreciate the extent to which management manipulates earnings, and that insight into this may improve performance, especially in the IPO group, where there is little non-financial and external data to balance management’s actions.

Reference:

“Earnings Management and the Long-Run Market Performance of Initial Public Offerings”  Siew Hong Teoh; Ivo Welch; T. J. Wong, Dec 1998, Vol. LIII, No. 6

Analyses of HOLDRs

BBH:  Neutral.  (Biotechnology)

BDH:  Bearish.  (Broadband)

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BHH:  Neutral.  (Business to Business)

EKH:  Neutral.  (European Stocks)

HHH:  Bearish.  (Internet)

IAH:  Neutral.  (Internet Architecture)

IIH:   Neutral.  (Internet Infrastructure)

OIH:  Neutral.  (Oil Services)

PPH:  Neutral.  (Pharmaceuticals)

RKH:  Neutral.  (Regional Banks)

RTH:  Neutral.  (Retail)

SMH:  Neutral.  (Semiconductors)

SWH:  Neutral.  (Software)

TTH:  Bullish.  (Telecommunications)

UTH:  Neutral.  (Utilities)

WMH:  Neutral.  (Wireless)

Analyses of Individual Stocks

Bullish Stocks

DRI

• Bull flag
• Strong advance
• Bullish volume

TXU

• Symmetrical triangle
• Strong volume
• Very strong and consistent advance

LNCR

• Bullish consolidation
• Strong advance
• Positive volume

Bearish Stocks

ERTS

• Potential double top
• Near resistance with poor momentum