Accounting Scandals in IPO Firms: Do Underwriters and VCs Help?
Journal of Economics and Management Strategy, Vol. 19, No. 4, Winter 2010
67 Pages Posted: 14 Oct 2010
Date Written: June 2010
We examine whether underwriter reputation, venture capitalist (VC) backing, and VC reputation are related to the probability that a newly public firm has serious accounting problems. Using a novel dataset, we find that the probability of restatement by an IPO firm is positively related to underwriter reputation and negatively related to VC backing, VC reputation and VC maturity. Our results do not appear to be driven by the endogeneity of underwriter reputation or VC backing. Our findings suggest that while VCs positively influence the financial reporting quality of IPO firms, underwriters’ concerns about revenue generation outweigh their concerns about reputation.
Keywords: Accounting scandals, Financial restatements, Financial misreporting, IPO, Venture capital, Underwriter reputation
JEL Classification: G24, G34, K22, M41
Suggested Citation: Suggested Citation