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http://ssrn.com/abstract=1782238
 
 

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Disciplining Delegated Monitors: The Consequences of Failing to Prevent Fraud


Xuan Tian


Indiana University - Kelley School of Business - Department of Finance

Gregory F. Udell


Indiana University - Kelley School of Business - Department of Finance

Xiaoyun Yu


Indiana University - Kelley School of Business - Department of Finance; China Academy of Financial Research (CAFR)

September 26, 2012

Sixth Singapore International Conference on Finance 2012 Paper

Abstract:     
Information-based theories of financial intermediation focus on delegated monitoring. However, there is little evidence on how markets discipline financial intermediaries who fail at this function. We exploit the direct link between corporate fraud and monitoring failure and examine how a venture capital (VC) firm’s reputation is affected when it fails to prevent fraud in its portfolio companies. We find that reputation-damaged VCs interact differently in the future with their limited partners, other VCs, and IPO underwriters because they are perceived as inefficient monitors. In addition, VCs who fail to prevent fraud experience greater difficulty in taking future portfolio companies public.

Number of Pages in PDF File: 52

Keywords: Corporate Fraud, Initial Public Offerings, Financial Intermediaries, Reputation, Venture Capital

JEL Classification: D01, D85, G2, G24, G3, K4

working papers series


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Date posted: March 10, 2011 ; Last revised: May 14, 2014

Suggested Citation

Tian, Xuan and Udell, Gregory F. and Yu, Xiaoyun, Disciplining Delegated Monitors: The Consequences of Failing to Prevent Fraud (September 26, 2012). Sixth Singapore International Conference on Finance 2012 Paper. Available at SSRN: http://ssrn.com/abstract=1782238 or http://dx.doi.org/10.2139/ssrn.1782238

Contact Information

Xuan Tian
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. Tenth Street
Bloomington, IN 47405
United States
812-8553420 (Phone)
824-8555875 (Fax)
HOME PAGE: http://kelley.iu.edu/tianx

Gregory F. Udell
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States

Xiaoyun Yu (Contact Author)
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3521 (Phone)
812-855-5875 (Fax)

China Academy of Financial Research (CAFR)
1954 Huashan Road
Shanghai P.R.China, 200030
China

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