Abstract

https://ssrn.com/abstract=1782238
 
 

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Disciplining Delegated Monitors: When Venture Capitalists Fail to Prevent Fraud by Their IPO Firms


Xuan Tian


Tsinghua University - PBC School 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)

August 31, 2015

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 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 ineffective monitors. In addition, VCs that fail to prevent fraud experience greater difficulty in taking future portfolio companies public.

Number of Pages in PDF File: 69

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

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


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Date posted: March 10, 2011 ; Last revised: September 1, 2015

Suggested Citation

Tian, Xuan and Udell, Gregory F. and Yu, Xiaoyun, Disciplining Delegated Monitors: When Venture Capitalists Fail to Prevent Fraud by Their IPO Firms (August 31, 2015). Sixth Singapore International Conference on Finance 2012 Paper. Available at SSRN: https://ssrn.com/abstract=1782238 or http://dx.doi.org/10.2139/ssrn.1782238

Contact Information

Xuan Tian
Tsinghua University - PBC School of Finance ( email )
No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)
HOME PAGE: http://xuantian.info/
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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