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Venture Capital and Earnings Management in IPOs

33 Pages Posted: 29 Jun 2008 Last revised: 5 Sep 2013

Sabrina Ozawa Gioielli

Government of the Federative Republic of Brazil - Central Bank of Brazil

Antonio Gledson De Carvalho

Fundacao Getulio Vargas School of Business at Sao Paulo

Joelson Oliveira Sampaio

Getulio Vargas Foundation (FGV), Sao Paulo School of Economics, Students

Date Written: Sep 1, 2013

Abstract

We investigate earnings management (EM) in IPOs and the role of private equity/venture capital (PEVC) in hampering such practice. We show that in terms of EM, PEVC and non-PEVC-sponsored firms should be treated as different samples: when we split the sample, R-squared increases drastically for both subsamples. EM in PEVC-sponsored IPOs is marginal while in non-PEVC-sponsored ones it is large. For PEVC-sponsored IPOs, the phases of the IPO are only marginally significant to explain EM while firms’ characteristics are highly statistically significant. In contrast, for non-PEVC-sponsored ones, the phases of the IPO are highly statistically significant and firms’ characteristics are only marginally statistically significant. Finally, only for PEVC-sponsored IPOs the reputation of the auditor is important to explain EM. This suggests that either auditors are more effective to control EM in those firms or, alternatively, that the choice of auditor is more meaningful for PEVC-sponsored firm, suggesting that the choice of a highly reputed auditor is a compromise not to manage earnings.

Keywords: earnings management, IPO, venture capital, private equity

JEL Classification: G24, G30, M41

Suggested Citation

Gioielli, Sabrina Ozawa and De Carvalho, Antonio Gledson and Sampaio, Joelson Oliveira, Venture Capital and Earnings Management in IPOs (Sep 1, 2013). Available at SSRN: https://ssrn.com/abstract=1134932 or http://dx.doi.org/10.2139/ssrn.1134932

Sabrina Gioielli

Government of the Federative Republic of Brazil - Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

HOME PAGE: http://www.bcb.gov.br

Antonio Gledson De Carvalho (Contact Author)

Fundacao Getulio Vargas School of Business at Sao Paulo ( email )

R. Itapeva, 474 - 7o. andar
Sao Paulo 01313-902
Brazil
+5511 3281-7767 (Phone)

Joelson Sampaio

Getulio Vargas Foundation (FGV), Sao Paulo School of Economics, Students ( email )

Rua Itapeva 474 s.1202
São Paulo
Brazil

HOME PAGE: http://eesp.fgv.br/

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