 Do stressed PE firms misbehave?Ranko Jelic, Dan Zhou and Wasim Ahmad Journal of Corporate Finance, 2021, vol. 66, issue C Abstract: For private equity (PE) firms, follow-on funds provide additional streams of management fees for a considerable time. When prospective investors evaluate the performance of PE firms' latest funds, they have to rely on valuations reported by PE firms. The link between PE firms' fundraising and performance evaluation is thus an area susceptible to manipulation resulting in potentially high stakes. We examine the relationship between PE firms' fundraising pressure and earnings management in portfolio companies, along with heterogeneity in behaviour by reputation and dry powder. To proxy for the degree of fundraising pressure, we develop an index based on PE firms' affiliations, stage in the fundraising cycle, and fundraising frequency. Results suggest that the fundraising pressure leads to more earnings management in portfolio companies, regardless of PE firm reputation. While the reputational effect remains unchanged under a change in funding pressure, dry powder exhibits a strong moderating effect under extreme funding pressure. The results are robust to alternative proxies for earnings management, alternative fundraising indexes, and various controls for endogeneity concerns. Keywords: Private equity; Fundraising; Earnings management; IPOs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:66:y:2021:i:c:s092911992030242x DOI: 10.1016/j.jcorpfin.2020.101798 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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