Earnings Quality and Ownership Structure: The Role of Private Equity Sponsors

Posted: 20 Nov 2008 Last revised: 27 Jul 2011

Multiple version iconThere are 2 versions of this paper

Date Written: November 17, 2008

Abstract

This study explores how firms' ownership structures affect their earnings quality and long-term performance. Focusing on a unique sample of private firms for which there is financial data available in the years before and after their initial public offering (IPO), I differentiate between those that have private equity sponsorship (PE-backed firms) and those that do not (non-PE-backed firms). The findings indicate that PE-backed firms generally have higher earnings quality than those that do not have PE sponsorship, engage less in earnings management, and report more conservatively both before and after the IPO. Further, PE-backed firms that are majority-owned by PE sponsors exhibit superior long-term stock price performance after they go public. These results stem from the professional ownership, tighter monitoring, and reputational considerations exhibited by PE sponsors.

Keywords: conservatism, earnings management, private and public firms, private equity sponsors

JEL Classification: G32, M20, M41, M43, M44

Suggested Citation

Katz, Sharon P., Earnings Quality and Ownership Structure: The Role of Private Equity Sponsors (November 17, 2008). Accounting Review, Vol. 84, No. 3, pp. 623-658, May 2009. Available at SSRN: https://ssrn.com/abstract=1303253

Sharon P. Katz (Contact Author)

INSEAD ( email )

Boulevard de Constance
CEDEP No. 11
F-7705 Fontainebleau Cedex, 77305
France

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