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Venture capital and earnings management in IPOs

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Abstract

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.

Keyword : Earnings management, IPO, venture capital

How to Cite
Gioielli, S. P. O., Carvalho, A. G. de, & Sampaio, J. O. (2013). Venture capital and earnings management in IPOs. Brazilian Business Review, 10(4), 30-64. https://doi.org/10.15728/bbr.2013.10.4.2
  Submitted
Jun 8, 2018
Published
Oct 1, 2013
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