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 Gerenciamento de resultados, oferta pública inicial de ações (IPO), capital de risco (ou private equity e venture capital – PE/VC)