This paper examines the role of earnings management in the underpricing and long-term performance of Chinese initial public offerings (IPOs) issued during the 1998-2003 period. It tests the earnings extrapolation hypothesis that naive investors extrapolate pre-issue earnings without fully adjusting for potential manipulation of accounting accruals, thereby inflating the initial trading price. If the hypothesis holds, underpricing will be positively related to initial earnings management. However, since the latter is subsequently corrected over time, it will lead to inferior long-term stock performance. The empirical evidence is consistent with both the earnings extrapolation and the long run underperformance hypotheses for our sample of 506 IPOs.