Advanced Search
MyIDEAS: Login to save this paper or follow this series

Venture Capital, Private Equity and Earnings Quality

Contents:

Author Info

  • Christof Beuselinck
  • Marc Deloof
  • Sophie Manigart

    ()
    (Vlerick Leuven Gent Management School)

Abstract

This paper examines the quality of financial statements reported by private equity (PE) backed companies in the years around the initial PE investment. We study both pre- and post-investment earnings characteristics of a unique hand-collected sample of 556 Belgian unlisted companies, receiving PE financing between 1985 & 1999, and a matched non-PE backed sample. We find strong evidence of upward earnings management in the PE backed sample prior to the investment year, consistent with the hypothesis that entrepreneurs which apply for PE manage earnings upward to catch PE investors' interest. Further, PE backed companies show a significantly higher extent of earnings conservatism compared to matched companies from the investment year on, indicating a governance impact of PE investors on the financial reporting discipline. Finally, we find a marginally higher degree of earnings conservatism for companies receiving PE from non-government related investors compared to companies backed by government-related PE investors. We interpret this stricter financial reporting discipline as being the reflection of a more slack governance by government-related PE investors compared to non-government-related investors. Our results have implications for PE investors as well as for all other stakeholders of PE backed firms.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.vlerick.be/en/2696-VLK/version/default/part/AttachmentData/data/vlgms-wp-2004-02.pdf
Our checks indicate that this address may not be valid because: 404 Not Found (http://www.vlerick.be/en/2696-VLK/version/default/part/AttachmentData/data/vlgms-wp-2004-02.pdf [301 Moved Permanently]--> http://www.vlerick.com/en/2696-VLK/version/default/part/AttachmentData/data/vlgms-wp-2004-02.pdf). If this is indeed the case, please notify (Isabelle Vandenbroere)
Download Restriction: no

Bibliographic Info

Paper provided by Vlerick Leuven Gent Management School in its series Vlerick Leuven Gent Management School Working Paper Series with number 2004-02.

as in new window
Length: 50 pages
Date of creation: 22 Feb 2004
Date of revision:
Handle: RePEc:vlg:vlgwps:2004-02

Contact details of provider:
Postal: Reep 1, 9000 Gent
Phone: +32 9 210 98 99
Fax: +32 9 210 97 00
Email:
Web page: http://www.vlerick.com
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start-Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, 02.
  2. Steven N. Kaplan & Per Stromberg, 2000. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," NBER Working Papers 7660, National Bureau of Economic Research, Inc.
  3. Sophie Manigart & Koen De Waele* & Mike Wright & Ken Robbie & Philippe Desbrières & Harry Sapienza & Amy Beekman, 2000. "Venture capitalists, investment appraisal and accounting information: a comparative study of the USA, UK, France, Belgium and Holland," European Financial Management, European Financial Management Association, vol. 6(3), pages 389-403.
  4. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  5. Steven N. Kaplan & Per Stromberg, 2001. "Venture Capitalists As Principals: Contracting, Screening, and Monitoring," NBER Working Papers 8202, National Bureau of Economic Research, Inc.
  6. Lerner, Josh, 1999. "The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program," The Journal of Business, University of Chicago Press, vol. 72(3), pages 285-318, July.
  7. Burgstahler, David & Dichev, Ilia, 1997. "Earnings management to avoid earnings decreases and losses," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 99-126, December.
  8. Dechow, Patricia M., 1994. "Accounting earnings and cash flows as measures of firm performance : The role of accounting accruals," Journal of Accounting and Economics, Elsevier, vol. 18(1), pages 3-42, July.
  9. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October.
  10. Basu, Sudipta, 1997. "The conservatism principle and the asymmetric timeliness of earnings," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 3-37, December.
  11. Sapienza, Harry J. & Manigart, Sophie & Vermeir, Wim, 1996. "Venture capitalist governance and value added in four countries," Journal of Business Venturing, Elsevier, vol. 11(6), pages 439-469, November.
  12. Teoh, Siew Hong & Welch, Ivo & Wong, T. J., 1998. "Earnings management and the underperformance of seasoned equity offerings," Journal of Financial Economics, Elsevier, vol. 50(1), pages 63-99, October.
  13. Macmillan, Ian C. & Zemann, Lauriann & Subbanarasimha, P. N., 1987. "Criteria distinguishing successful from unsuccessful ventures in the venture screening process," Journal of Business Venturing, Elsevier, vol. 2(2), pages 123-137.
  14. Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
  15. Hellmann, Thomas & Puri, Manju, 2000. "The Interaction between Product Market and Financing Strategy: The Role of Venture Capital," Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 959-84.
  16. Leleux, Benoit & Surlemont, Bernard, 2003. "Public versus private venture capital: seeding or crowding out? A pan-European analysis," Journal of Business Venturing, Elsevier, vol. 18(1), pages 81-104, January.
  17. Mike Wright, 1998. "Venture Capital and Private Equity: A Review and Synthesis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(5&6), pages 521-570.
  18. Gompers, Paul A, 1995. " Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-89, December.
  19. DeFond, Mark L. & Jiambalvo, James, 1994. "Debt covenant violation and manipulation of accruals," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 145-176, January.
  20. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  21. Degeorge, Francois & Patel, Jayendu & Zeckhauser, Richard, 1999. "Earnings Management to Exceed Thresholds," The Journal of Business, University of Chicago Press, vol. 72(1), pages 1-33, January.
  22. Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-18, March.
  23. Hall, John & Hofer, Charles W., 1993. "Venture capitalists' decision criteria in new venture evaluation," Journal of Business Venturing, Elsevier, vol. 8(1), pages 25-42, January.
  24. Perry, Susan E. & Williams, Thomas H., 1994. "Earnings management preceding management buyout offers," Journal of Accounting and Economics, Elsevier, vol. 18(2), pages 157-179, September.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:vlg:vlgwps:2004-02. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Isabelle Vandenbroere).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.