Venture capital, private equity and earnings quality

Christof Beuselinck, Marc Deloof and Sophie Manigart

Working Papers from University of Antwerp, Faculty of Business and Economics

Abstract: This paper examines the quality of financial statements reported by private equity (PE) backed companies in the years around the initial PE investment. We study both pre- and postinvestment earnings characteristics of a unique hand-collected sample of 556 Belgian unlisted companies, receiving PE financing between 1985 & 1999, and a matched non-PE backed sample. We find strong evidence of upward earnings management in the PE backed sample prior to the investment year, consistent with the hypothesis that entrepreneurs which apply for PE manage earnings upward to catch PE investors’ interest. Further, PE backed companies show a significantly higher extent of earnings conservatism compared to matched companies from the investment year on, indicating a governance impact of PE investors on the financial reporting discipline. Finally, we find a marginally higher degree of earnings conservatism for companies receiving PE from non-government related investors compared to companies backed by government-related PE investors. We interpret this stricter financial reporting discipline as being the reflection of a more slack governance by government-related PE investors compared to non-government-related investors. Our results have implications for PE investors as well as for all other stakeholders of PE backed firms.

JEL-codes: G32 M13 M49 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2004-12
New Economics Papers: this item is included in nep-acc, nep-ent and nep-fin
References: Add references at CitEc
Citations:

Downloads: (external link)
https://repository.uantwerpen.be/docman/irua/c5c8a2/f1c01206.pdf (application/pdf)

Related works:
Working Paper: Venture Capital, Private Equity and Earnings Quality (2004)
Working Paper: Venture Capital, Private Equity and Earnings Quality (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ant:wpaper:2004002

Access Statistics for this paper

More papers in Working Papers from University of Antwerp, Faculty of Business and Economics Contact information at EDIRC.
Bibliographic data for series maintained by Joeri Nys ().