The Dynamics of Earnings Management in IPOs and the Role of Venture Capital

CARVALHO, A. G. ; Pinheiro, Roberto ; SAMPAIO, J. O. . The Dynamics of Earnings Management in IPOs and the Role of Venture Capital. RESEARCH IN INTERNATIONAL BUSINESS AND FINANCE, v. 2, p. 16, 2019.

31 Pages Posted: 22 Jul 2020

See all articles by Antonio Gledson De Carvalho

Antonio Gledson De Carvalho

Fundacao Getulio Vargas School of Business at Sao Paulo

Roberto Pinheiro

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Joelson Oliveira Sampaio

Getulio Vargas Foundation (FGV), Sao Paulo School of Economics, Students

Date Written: 2019

Abstract

We investigate the dynamics of earnings management (EM) in IPOs and the role of venture capitalist (VC) in hampering such practice. We study the behavior of EM in four phases: Pre-IPO, IPO, Lock-up and Post-lock-up. We find that VC-sponsored firms tend to do more EM in the Pre-IPO period, and less in two subsequent periods. These results are distinct for those of Wongsunwai (2013), for which, VC-sponsored firms do less EM only in the IPO period. We also find that VC and non-VC-sponsored firms do EM around the IPO in distinct fashions. Non-VC-sponsored firms inflate earnings during the IPO period and deflate in the Lock-up and Post-lock-up periods. VC-sponsored firms inflate earnings in the Pre-IPO period and deflate earnings only in the Lock-up period. Our results are robust with respect to how one measures EM and the statistical methods used.

Keywords: Earnings Management, IPO, Venture Capital

JEL Classification: G24, G30, M41

Suggested Citation

De Carvalho, Antonio Gledson and Pinheiro, Roberto and Sampaio, Joelson Oliveira, The Dynamics of Earnings Management in IPOs and the Role of Venture Capital (2019). CARVALHO, A. G. ; Pinheiro, Roberto ; SAMPAIO, J. O. . The Dynamics of Earnings Management in IPOs and the Role of Venture Capital. RESEARCH IN INTERNATIONAL BUSINESS AND FINANCE, v. 2, p. 16, 2019., Available at SSRN: https://ssrn.com/abstract=3639266

Antonio Gledson De Carvalho

Fundacao Getulio Vargas School of Business at Sao Paulo ( email )

R. Itapeva, 474 - 7o. andar
Sao Paulo 01313-902
Brazil
+5511 3281-7767 (Phone)

Roberto Pinheiro

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Joelson Oliveira Sampaio (Contact Author)

Getulio Vargas Foundation (FGV), Sao Paulo School of Economics, Students ( email )

Rua Itapeva 474 s.1202
São Paulo
Brazil

HOME PAGE: http://eesp.fgv.br/

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