Accounting Scandals in IPO Firms: Do Underwriters and VCs Help?

Agrawal, Anup; Cooper, Tommy

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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

See all articles by Anup Agrawal

Anup Agrawal

University of Alabama - Culverhouse College of Commerce & Business Administration

Tommy Cooper

University of Alabama - Department of Economics, Finance and Legal Studies

There are 2 versions of this paper

Date Written: June 2010

Abstract

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

Agrawal, Anup and Cooper, Tommy, Accounting Scandals in IPO Firms: Do Underwriters and VCs Help? (June 2010). Journal of Economics and Management Strategy, Vol. 19, No. 4, Winter 2010, Available at SSRN: https://ssrn.com/abstract=1691115