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Financial Reporting Quality in Private Equity Backed Companies: The Impact of Ownership Concentration

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  • Christof Beuselinck
  • Sophie Manigart

Abstract

We argue and empirically show on a sample of 270 unquoted, private equity backed companies that the shareholder structure of private companies influences the quality of their accounting information. We show that companies in which private equity (PE) investors have a higher equity stake produce accounting information that is of lower quality than companies in which PE investors have a lower equity stake, controlling for company size and age. We argue that this is evidence that a large equity stake is a substitute for high earnings quality
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  • Christof Beuselinck & Sophie Manigart, 2007. "Financial Reporting Quality in Private Equity Backed Companies: The Impact of Ownership Concentration," Small Business Economics, Springer, vol. 29(3), pages 261-274, October.
    • Handle: RePEc:kap:sbusec:v:29:y:2007:i:3:p:261-274
    DOI: 10.1007/s11187-006-9022-1
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    Cited by:

    1. L. Goossens & S. Manigart & M. Meuleman, 2007. "The Change In Ownership After A Buyout: Impact On Performance," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 07/484, Ghent University, Faculty of Economics and Business Administration.
    2. Douglas Cumming & Lars Helge Hass & Linda A. Myers & Monika Tarsalewska, 2023. "Does Venture Capital Backing Improve Disclosure Controls and Procedures? Evidence from Management’s Post-IPO Disclosures," Journal of Business Ethics, Springer, vol. 187(3), pages 539-563, October.
    3. David B. Audretsch & Erik E. Lehmann, 2013. "Corporate governance in newly listed companies," Chapters, in: Mario Levis & Silvio Vismara (ed.), Handbook of Research on IPOs, chapter 9, pages 179-206, Edward Elgar Publishing.
    4. Ahmed Yousif Adam Ismael, 2017. "The Impact of Creative Accounting Techniques on the Reliability of Financial Reporting with Particular Reference to Saudi Auditors and Academics," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 283-291.
    5. Mirjam Knockaert & Tom Vanacker, 2013. "The association between venture capitalists’ selection and value adding behavior: evidence from early stage high tech venture capitalists," Small Business Economics, Springer, vol. 40(3), pages 493-509, April.
    6. Claudia GRIGORAS-ICHIM, 2017. "Corporate Governance And Its Implications For Financial Reporting," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 6(1), pages 1-59, January.
    7. Heidi Vander Bauwhede & Michiel De Meyere & Philippe Van Cauwenberge, 2015. "Financial reporting quality and the cost of debt of SMEs," Small Business Economics, Springer, vol. 45(1), pages 149-164, June.
    8. Lorraine Uhlaner & Mike Wright & Morten Huse, 2007. "Private Firms and Corporate Governance: An Integrated Economic and Management Perspective," Small Business Economics, Springer, vol. 29(3), pages 225-241, October.
    9. Sharon Katz, 2008. "Earnings Quality and Ownership Structure: The Role of Private Equity Sponsors," NBER Working Papers 14085, National Bureau of Economic Research, Inc.
    10. Christof Beuselinck & Marc Deloof & Sophie Manigart, 2008. "Private Equity Investments and Disclosure Policy," European Accounting Review, Taylor & Francis Journals, vol. 17(4), pages 607-639.
    11. M. Knockaert & T. Vanacker, 2011. "The Association between Venture Capitalists’ Selection and Value Adding Behavior: Evidence from Early Stage High Tech Venture Capitalists," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 11/741, Ghent University, Faculty of Economics and Business Administration.
    12. Jingyu Gao & Adi Masli & Ikseon Suh & Jingchang Xu, 2021. "The Influence of a Family Business Climate and CEO–CFO Relationship Quality on Misreporting Conduct," Journal of Business Ethics, Springer, vol. 171(1), pages 99-122, June.
    13. Sami Basly & Tayeb Saadi, 2020. "The Value relevance of accounting performance measures for quoted family firms: A study in the light of the alignment and entrenchment hypotheses," Post-Print hal-03258926, HAL.
    14. Joseph Mbawuni, 2019. "Assessing Financial Reporting Quality of Listed Companies in Developing Countries: Evidence from Ghana," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(9), pages 1-29, September.
    15. Oliver Lukason & María-del-Mar Camacho-Miñano, 2020. "Corporate Governance Characteristics of Private SMEs’ Annual Report Submission Violations," JRFM, MDPI, vol. 13(10), pages 1-19, September.
    16. Douglas Cumming & Sofia Johan, 2009. "Pre-seed government venture capital funds," Journal of International Entrepreneurship, Springer, vol. 7(1), pages 26-56, March.
    17. Fabio Bertoni & María Ferrer & José Martí, 2013. "The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms," Small Business Economics, Springer, vol. 40(3), pages 607-633, April.
    18. Thilini Cooray & A. D. Nuwan Gunarathne & Samanthi Senaratne, 2020. "Does Corporate Governance Affect the Quality of Integrated Reporting?," Sustainability, MDPI, vol. 12(10), pages 1-30, May.
    19. Professor Owolabi, S.A. & Afolayan, Oluwatobi, 2020. "Auditor’s Independence (AUDINDP) and the Quality of Financial Reporting (FRQ) in Listed Deposit Money Banks (DMB’s) in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 4(8), pages 303-309, August.
    20. Julio Sarmiento & Mehdi Sadeghi & Juan S. Sandoval & Edgardo Cayon, 2021. "The application of proxy methods for estimating the cost of equity for unlisted companies: evidence from listed firms," Review of Quantitative Finance and Accounting, Springer, vol. 57(3), pages 1009-1031, October.
    21. Jelic, Ranko & Zhou, Dan & Ahmad, Wasim, 2021. "Do stressed PE firms misbehave?," Journal of Corporate Finance, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    financial reporting quality; governance; ownership structure; private equity.; G34; L26; M13; M41;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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