Venture capital and earnings management in IPOs

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 bo...

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Bibliographic Details
Published inBrazilian business review Vol. 10; no. 4; pp. 30 - 64
Main Authors Gioielli, Sabrina P. Ozawa, Carvalho, Antonio Gledson de, Sampaio, Joelson Oliveira
Format Journal Article
LanguageEnglish
Portuguese
Published Vitória FUCAPE Business School 30.12.2013
EditionEnglish ed.
Subjects
Annual reports
Corporate governance
Earnings management
Equity
Initial public offerings
Private equity
Reputations
Studies
Venture capital
Brazil
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Summary: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. [PUBLICATION ABSTRACT]
ISSN:1808-2386
1808-2386
DOI:10.15728/bbr.2013.10.4.2