Article2010

Accounting Scandals in IPO Firms: Do Underwriters and VCs Help?

39 citations0/0 files storedJournal of Economics & Management Strategy

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

We examine whether underwriter reputation, venture capitalist (VC) backing, and VC reputation are related to the probability that a newly public firm has serious accounting problems. Using a novel data set, we find that the probability of restatement by an initial public offering (IPO) firm is positively related to underwriter reputation and negatively related to VC backing, VC reputation, and VC maturity. Our results do not appear to be driven by the endogeneity of underwriter reputation or VC backing. Our findings suggest that while VCs positively influence the financial reporting quality of IPO firms, underwriters’ concerns about revenue generation outweigh their concerns about reputation.

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References

2001Econometric Analysis of Cross Section and Panel Data 1970The Market for "Lemons": Quality Uncertainty and the Market Mechanism 1978Specification Tests in Econometrics 1993The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems 1984Financial Intermediation and Delegated Monitoring 1999A Review of the Earnings Management Literature and Its Implications for Standard Setting 2002Audit committee, board of director characteristics, and earnings management 1996Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*

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2016Multiple lead underwriting syndicate and IPO pricing 2017Corporate Fraud and Corporate Bond Costs: Evidence from China 2018The impact of stakeholders’ temporal orientaton on short- and long-term IPO outcomes: A meta-analysis 2009Corporate insider trading: A literature review 2012An empirical study of the effect of venture capital participation on the accounting information quality of IPO firms

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