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Earnings Quality and Ownership Structure: The Role of Private Equity Sponsors

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  • Sharon Katz
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    Abstract

    This study explores how firms' ownership structures affect their earnings quality and long-term performance. Focusing on a unique sample of private firms for which there is financial data available in the years before and after their initial public offering (IPO), I differentiate between those that have private equity sponsorship (PE-backed firms) and those that do not (non-PE-backed firms). The findings indicate that PE-backed firms generally have higher earnings quality than those that do not have PE sponsorship, engage less in earnings management and report more conservatively both before and after the IPO. Further, PE-backed firms that are majority-owned by PE sponsors exhibit superior long-term stock price performance after they go public. These results stem from the professional ownership, tighter monitoring, and reputational considerations exhibited by PE sponsors.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14085.

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    Date of creation: Jun 2008
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    Publication status: published as Title: Earnings quality and ownership structure: the role of private equity sponsors Author(s): Katz S P Journal: The Accounting Review, May 2009, Volume: 84 Issue: 3 pp.623-658 (36 pages) Issn: 0001-4826
    Handle: RePEc:nbr:nberwo:14085

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    Cited by:
    1. Norbäck, Pehr-Johan & Persson, Lars & Tåg, Joacim, 2010. "Ownership Efficiency and Tax Advantages: The Case of Private Equity Buyouts," Working Paper Series, Research Institute of Industrial Economics 841, Research Institute of Industrial Economics.
    2. Sjögren, Anna, 2010. "Graded Children – Evidence of Longrun Consequences of School Grades from a Nationwide Reform," Working Paper Series, Research Institute of Industrial Economics 839, Research Institute of Industrial Economics.

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