Manipulation and Fraud with Staged Financing

28 Pages Posted: 19 Feb 2015

See all articles by Chris Yung

Chris Yung

University of Virginia - McIntire School of Commerce

Date Written: February 17, 2015

Abstract

It has been argued that short-term financing has a drawback: managers must manipulate interim performance signals in order to keep funds flowing. In contrast, this paper finds that total (expected) manipulation across two rounds of short-term financing may be either greater than or lower than manipulation with long-term financing. Manipulation in the two rounds may either act as complements or substitutes, depending on whether one is looking forward or backward in time. Regulatory fraud prevention remedies have more power when directed at the first round behavior. Manipulation is nonmonotonic in both firm quality and leverage.

Keywords: Disclosure, Fraud, Earnings Management, Venture Capital, Staging

JEL Classification: G32

Suggested Citation

Yung, Chris, Manipulation and Fraud with Staged Financing (February 17, 2015). Available at SSRN: https://ssrn.com/abstract=2566534 or http://dx.doi.org/10.2139/ssrn.2566534

Chris Yung (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-242-0836 (Phone)

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