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Venture capital and earnings management in IPOs

  • Sabrina P. Ozawa Gioielli

    (Getulio Vargas Foundation)

  • Antonio Gledson de Carvalho

    (Getulio Vargas Foundation)

  • Joelson Oliveira Sampaio

    (Getulio Vargas Foundation)

Registered author(s):

    We investigate earnings management (EM) in IPOs and the role of private equity/venture capital (PEVC) in hampering such practice. We show that when analyzing EM, PEVC and non-PEVC-sponsored firms should be treated as different samples: if one splits the sample, R-squared increases drastically for both subsamples. For PEVC-sponsored IPOs EM is marginal, mostly related to firms’ characteristics and little related to the phases of the IPOs. Differently, for non-PEVC-sponsored IPOs EM is significant, mostly related to the phases of the IPO and little related to firms’ characteristics. Finally, the reputation of the auditor is important only for PEVC-sponsored IPOs, suggesting that the choice of auditor is more meaningful for PEVC-sponsored firm, i.e, the choice of reputed auditor represents a compromise not to manage earnings.

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    File URL: http://www.bbronline.com.br/public/edicoes/10_4/artigos/1nj5nk19vv13122013151000.pdf
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    Article provided by Fucape Business School in its journal Brazilian Business Review.

    Volume (Year): 10 (2013)
    Issue (Month): 4 (October)
    Pages: 30-64

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    Handle: RePEc:bbz:fcpbbr:v:10:y:2013:i:4:p:30-64
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    1. Steven N. Kaplan & Per Strömberg, 2000. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," CRSP working papers 513, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    2. 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.
    3. Bartov, Eli & Gul, Ferdinand A. & Tsui, J.S.L.Judy S. L., 2000. "Discretionary-accruals models and audit qualifications," Journal of Accounting and Economics, Elsevier, vol. 30(3), pages 421-452, December.
    4. Hellmann, Thomas F. & Puri, Manju, 2000. "Venture Capital and the Professionalization of Start-up Firms: Empirical Evidence," Research Papers 1661, Stanford University, Graduate School of Business.
    5. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
    6. Steven N. Kaplan & Per Str�mberg, 2003. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 281-315.
    7. Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-18, March.
    8. Kothari, S.P. & Leone, Andrew J. & Wasley, Charles E., 2005. "Performance matched discretionary accrual measures," Journal of Accounting and Economics, Elsevier, vol. 39(1), pages 163-197, February.
    9. Siew Hong Teoh & Ivo Welch & T.J. Wong, 1998. "Earnings Management and the Long-Run Market Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 53(6), pages 1935-1974, December.
    10. 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.
    11. Carter, Richard B & Manaster, Steven, 1990. " Initial Public Offerings and Underwriter Reputation," Journal of Finance, American Finance Association, vol. 45(4), pages 1045-67, September.
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