This paper combines asymmetry information and signaling models to show, under different bankruptcy costs, the conditions of pooling equilibrium for successful and failed firms that choose the same depreciation method but lead to different operating results. We also shows the conditions of separating equilibrium, for which successful firms choose different depreciation method to that of failed firms. To confirm whether the empirical results are consistent with the theory, the paper sampled initial public offering (IPO) companies to examine the factors that influence the choice of accounting methods (using depreciation methods as the example). Furthermore, the paper separate accrual items into discretionary current, non-discretionary current, discretionary long-term and non-discretionary long-term accrual items to analyze the relationship between these variables and the choice of accounting methods. The results of analytical models are: (1) When investors perceive that successful firms choose earnings increasing method (straight-line deprecation method) whereas failed firms choose earnings decreasing method (accelerate deprecation method), they are able to obtain the conditions of hybrid equilibrium. (2) When investors perceive successful firms will choose accelerate method, whereas failed firms choose straight-line method, they can obtain the conditions of separate equilibrium. Moreover, the empirical results show: (1) The companies that have higher debt-to-equity ratio before IPO tend to adopt earnings increasing method to gain the trust of the investor. (2) The companies that have higher assets returns in the year and two years after IPO tend not to adopt earnings increasing method. (3) Because there are many ways to have successful IPO, the impact of using depreciation methods to manipulate earnings is minimal. It reduces their motive of utilizing accrual items adjustment to affect depreciation method. (4) The non-discretionary current and long-term accrual items in the second year of IPO are significantly positively related to abnormal returns.