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Does Venture Capital Backing Improve Disclosure Controls and Procedures? Evidence from Management’s Post-IPO Disclosures

Author

Listed:
  • Douglas Cumming

    (Florida Atlantic University
    University of Birmingham)

  • Lars Helge Hass

    (University of Strathclyde)

  • Linda A. Myers

    (University of Tennessee, Knoxville)

  • Monika Tarsalewska

    (University of Exeter Business School)

Abstract

Firm managers make ethical decisions regarding the form and quality of disclosure. Disclosure can have long-term implications for performance, earnings manipulation, and even fraud. We investigate the impact of venture capital (VC) backing on the quality and informativeness of disclosure controls and procedures for newly public companies. We find that these controls and procedures are stronger, as evidenced by fewer material weaknesses in internal control under Section 302 of the Sarbanes–Oxley Act, when companies are VC-backed. Moreover, these disclosures are informative and are more likely to be followed by subsequent financial statement restatements than are disclosures made by non-VC-backed IPO companies.

Suggested Citation

  • Douglas Cumming & Lars Helge Hass & Linda A. Myers & Monika Tarsalewska, 2023. "Does Venture Capital Backing Improve Disclosure Controls and Procedures? Evidence from Management’s Post-IPO Disclosures," Journal of Business Ethics, Springer, vol. 187(3), pages 539-563, October.
    • Handle: RePEc:kap:jbuset:v:187:y:2023:i:3:d:10.1007_s10551-022-05272-1
    DOI: 10.1007/s10551-022-05272-1
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