Does Venture Capital Backing Improve Disclosure Controls and Procedures? Evidence from Management’s Post-IPO Disclosures

Douglas Cumming, Lars Helge Hass (), Linda A. Myers () and Monika Tarsalewska ()
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Lars Helge Hass: University of Strathclyde
Linda A. Myers: University of Tennessee, Knoxville
Monika Tarsalewska: University of Exeter Business School

Journal of Business Ethics, 2023, vol. 187, issue 3, No 7, 539-563

Abstract: Abstract Firm managers make ethical decisions regarding the form and quality of disclosure. Disclosure can have long-term implications for performance, earnings manipulation, and even fraud. We investigate the impact of venture capital (VC) backing on the quality and informativeness of disclosure controls and procedures for newly public companies. We find that these controls and procedures are stronger, as evidenced by fewer material weaknesses in internal control under Section 302 of the Sarbanes–Oxley Act, when companies are VC-backed. Moreover, these disclosures are informative and are more likely to be followed by subsequent financial statement restatements than are disclosures made by non-VC-backed IPO companies.

Keywords: Management disclosure; Material weaknesses; Disclosure controls and procedures; Venture capital; Initial public offerings; Sarbanes–Oxley Act of 2002; Corporate governance (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10551-022-05272-1

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