Looking Attractive until You Sell: Earnings Management, Lockup Expiration, and Venture Capitalists

2014 ◽  
Vol 51 (8) ◽  
pp. 1286-1310 ◽  
Author(s):  
Dae-il Nam ◽  
Haemin Dennis Park ◽  
Jonathan D. Arthurs
Keyword(s):  
Earnings Management ◽  
Venture Capitalists ◽  
Lockup Expiration

scholarly journals Role Of Underwriters In Restraining Earnings Management In Initial Public Offerings

2012 ◽  
Vol 28 (4) ◽  
pp. 709 ◽  
Author(s):  
Hei Wai Lee ◽  
Yan Alice Xie ◽  
Jian Zhou
Keyword(s):  
Earnings Management ◽  
Initial Public Offerings ◽  
The Internet ◽  
Venture Capitalists ◽  
Font Size ◽  
Going Public ◽  
Public Offerings ◽  
Investment Bankers ◽  
Sarbanes Oxley

<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 0.5in 0pt; text-align: justify; mso-pagination: none;" class="MsoNormal"><span style="font-family: Times New Roman;"><span style="font-size: 10pt;">We investigate the </span><span style="font-size: 10pt; mso-fareast-language: ZH-CN;">relationship</span><span style="font-size: 10pt;"> between underwriter</span><span style="font-size: 10pt; mso-fareast-language: ZH-CN;"> reputation</span><span style="font-size: 10pt;"> and earnings management of IPO firms over the period of 1991-2005. We find that </span><span style="font-size: 10pt; mso-fareast-language: ZH-CN;">IPO firms engage in less earnings management</span><span style="font-size: 10pt;"> if </span><span style="font-size: 10pt; mso-fareast-language: ZH-CN;">they</span><span style="font-size: 10pt;"> are underwritten by prestigious investment bankers. Furthermore, the role of prestigious underwriters in restraining earnings management of IPO issuers do not change during the Internet Bubble period or after the passage of the Sarbanes-Oxley Act (SOX). The findings support the certification role of underwriters in the IPO process.<span style="mso-spacerun: yes;"> </span>We also document that</span><span style="font-size: 10pt; mso-fareast-language: ZH-CN;"> firms going public in the post-SOX period engage in less earnings management compared to firms going public in the pre-SOX period</span><span style="font-size: 10pt;">. Further findings suggest that the changing objectives of venture capitalists may explain the reduction in the level of earnings management of IPO firms following the passage of SOX.</span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>

scholarly journals Venture Capital and Financial Reporting in Newly Public Firms

2018 ◽  
pp. 411-429
Author(s):  
Lars Helge Hass ◽  
Monika Tarsalewska
Keyword(s):  
Earnings Management ◽  
Empirical Evidence ◽  
Financial Reporting ◽  
Reporting Quality ◽  
Active Role ◽  
Real Earnings Management ◽  
Venture Capitalists ◽  
Public Firms ◽  
Reporting Practices

Financial intermediaries such as venture capitalists (VCs) not only provide financing, they also play an active role in firm governance and in financial practices before a firm goes public. Venture capitalists are actively engaged in monitoring and advising their portfolio firms. Thus, one also expects them to exert significant influence over the development of financial reporting practices. This chapter reviews recent literature and empirical evidence on VCs and financial reporting quality in newly public firms. It surveys the role of VCs in such activities as earnings management. In particular, it discusses how their monitoring activities and reputation can impact how their portfolio firms establish financial reporting practices. Subsequently, it also reviews the consequences of misreporting, and whether they affect VC behavior ex ante. Finally, the chapter uses recent data to provide empirical evidence on the effect of VCs on accrual and real earnings management.

Do Venture Capitalists Influence the Decision to Manage Earnings in Initial Public Offerings?

2006 ◽  
Vol 81 (5) ◽  
pp. 1119-1150 ◽  
Author(s):  
Suzanne G. Morsfield ◽  
Christine E. L. Tan
Keyword(s):  
Earnings Management ◽  
Initial Public Offerings ◽  
The Internet ◽  
Venture Capitalists ◽  
Public Offerings ◽  
Abnormal Accruals

Prior studies suggest that venture capitalists (VCs) play a monitoring role. We predict and find that IPO-year abnormal accruals are lower in the presence of VCs for a sample of 2,630 IPO firms during 1983–2001. Our findings are robust to controls for the endogenous choice of VC financing. We consistently find that the VC effect holds even when controlling for IPO lock-up provisions, VC partial cashing out subsequent to the IPO, and alternative proxies for earnings management. In addition, our findings do not support the claims of critics that VCs inflated earnings during the Internet IPO bubble. Finally, we provide some evidence that the lower earnings management associated with VC monitoring partially explains the superior post-IPO returns of VC-backed firms.

Earnings Management During Lockup in Explaining IPO Operating Underperformance

2015 ◽  
Vol 18 (01) ◽  
pp. 1550002 ◽  
Author(s):  
Tsai-Ling Liao ◽  
Chih-Jen Huang ◽  
Hsiao-Chi Liu
Keyword(s):  
Earnings Management ◽  
Initial Public Offering ◽  
High Tech ◽  
Return On Assets ◽  
Management Behavior ◽  
Reversal Effect ◽  
Public Offering ◽  
Lockup Expiration ◽  
The Relationship

This study examines the relationship between initial public offering (IPO) managers' earnings management behavior during lockup (measured with discretionary accruals, DAs) and operating performance following lockup expiration (measured with operating return on assets, OPROAs). Based on a U.S. IPO sample, the results indicate that DAs during lockup are significantly higher than after lockup expiration. In addition, the reversal effect of DAs results in a negative association of DAs in lockup with post-lockup OPROAs. This negative relation is primarily concentrated in small-sized, non-venture backed, high-tech, and hot-market issued IPOs and is consistent with prior findings that such IPO firms have poorer post-issue performance. The overall evidence supports the role of managerial earnings management behavior during lockup in explaining post-IPO operating underperformance.

Ownership dilution and earnings management: evidence from Indian IPOs

2019 ◽  
Vol 46 (3) ◽  
pp. 344-359
Author(s):  
Priyesh Valiya Purayil ◽  
Jijo Lukose P.J.
Keyword(s):  
Earnings Management ◽  
Emerging Market ◽  
Ordinary Least Squares ◽  
Least Squares Regression ◽  
Content Type ◽  
Public Firms ◽  
Security Offerings ◽  
Lockup Expiration ◽  
The Impact ◽  
The Relationship

Purpose Prior research on earnings management largely assumes that newly public firms manage earnings opportunistically around IPOs. However, only a few studies have empirically examined the real motives behind newly public firms’ earnings management. The purpose of this paper is to examine the impact of ownership dilution on earnings management among IPO firms. The authors chose the setting of security offerings in an emerging market, which is characterised by unique ownership structure, to examine the possible incentive of owners or pre-IPO shareholders to engage in earnings management. Design/methodology/approach The study employs accrual and real transactions measures to check the presence of earnings management among 409 IPO firms from India during the period 2000‒2018. Subsequently, using ordinary least squares regression models with heteroscedasticity-robust standard errors, this paper examines the relationship between earnings management and selling or dilution incentives of pre-IPO shareholders. Findings The study finds that the degree of earnings manipulation by issuer firms is positively associated with the ownership dilution at the time of IPO as well as around lockup expiration. Practical implications The findings of this study will help the investors and regulators to understand the practice of earnings management among IPO firms and how it is linked to the ownership dilution of pre-IPO shareholders. Originality/value The paper contributes to the limited stream of research that investigates the motives of earnings management among IPO firms. It empirically establishes an association between the selling incentive of pre-IPO shareholders and earnings management.

Pengaruh Hubungan Politik Terhadap Manajemen Laba Pada Perusahaan Sektor Jasa Dengan Variabel Kontrol Ukuran Perusahaan Dan Kualitas Audit

2018 ◽  
Vol 16 (2) ◽  
pp. 30
Author(s):  
Dwikky Darmawan ◽  
Weny Putri
Keyword(s):  
Earnings Management ◽  
Firm Size ◽  
Significant Influence ◽  
Service Sector ◽  
Audit Quality ◽  
Stock Exchange ◽  
Secondary Data ◽  
Annual Reports ◽  
Political Connection ◽  
Discretionary Accrual

The purpose of this study is to determine the effects of political connection toward the earnings management of service sector companies with control variables firm size and audit quality. Firm�s political connection measured by using dummy variable. Earnings management is proxied by discretionary accrual which is measured by using Modified Jones Model. The research data applied in this study are the secondary data which are taken from the annual reports of service sector companies that listed in Indonesian Stock Exchange of 2016-2017 periods. There are 330 observations fit as sample, which are taken by using purposive sampling method. Data are processed by applying the multiple linear regression test. The result show that the political connection had positive but not significant influence to earnings management. Firm size had negative but not significant influence to earnings management. Whereas the audit quality had a negative and significant influence to earnings management.

The relation between R&D accounting treatment and the risk of the firm: Evidence from the Italian market

2014 ◽  
pp. 33-54 ◽  
Author(s):  
Riccardo Cimini ◽  
Alessandro Gaetano ◽  
Alessandra Pagani
Keyword(s):  
Earnings Management ◽  
Fiscal Year ◽  
Investment Strategies ◽  
Capital Assets ◽  
Italian Market ◽  
D Investment ◽  
Firm Evidence

In this paper, we investigate the relation between the different accounting treatments of R&D expenditures and the risk of the entity in order to identify under which treatment insiders are more likely to carry out earnings management. By analysing the R&D investment strategies of a sample of 137 listed Italian entities that complied with the requirements of IAS 38 during fiscal year 2009, following Lantz and Sahut (2005), we calculate several indexes that show the preferences of insiders to account R&D expenditures as costs or capital assets, and we study the relation of such preferences with the risk of the entity, which we measure with the unlevered beta. We hypothesize that the entities, which considered the R&D investments as costs, are the riskiest ones due to the higher probability that insiders carried out earnings management. Our results confirm such hypothesis. This paper could have implications for academics and standard setters that could learn that behind accounting discretion, insiders could opportunistically behave against outsiders.

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