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Private Equity Involvement and Earnings Quality

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  • C. Beuselinck

    (LEM - Lille - Economie et Management - Université de Lille, Sciences et Technologies - CNRS - Centre National de la Recherche Scientifique)

  • M. Deloof
  • S. Manigart

Abstract

This paper examines the relation between private equity (PE) investors' involvement and their portfolio firms' earnings quality. We operationalize earnings quality through comparative analyses of conditional loss recognition timeliness. For a sample of unlisted Belgian firms, we find that PE involvement increases a firm's willingness to recognize losses more timely as compared to industry, size and life‐cycle matched non‐PE backed firms. Further, we document more powerful earnings quality effects for firms backed by independent and captive PE‐investors as compared to firms backed by government‐related PE‐investors. Finally, we find no systematic variation in earnings quality across different levels of PE ownership. Our results are robust to the inclusion of various controls and remain unaffected when we consider the endogeneity of PE investments and compare pre‐ and post PE investment years. The current results provide novel evidence towards the understanding of PE investors' governance implications for portfolio firms' earnings quality.
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Suggested Citation

  • C. Beuselinck & M. Deloof & S. Manigart, 2009. "Private Equity Involvement and Earnings Quality," Post-Print hal-00677522, HAL.
    • Handle: RePEc:hal:journl:hal-00677522
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    2. Tykvová, Tereza & Borell, Mariela, 2012. "Do private equity owners increase risk of financial distress and bankruptcy?," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 138-150.
    3. Schertler, Andrea & Tykvová, Tereza, 2012. "What lures cross-border venture capital inflows?," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1777-1799.
    4. Tykvová, Tereza, 2018. "Legal framework quality and success of (different types of) venture capital investments," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 333-350.
    5. Mari Paananen & Annelies Renders & Marita Blomkvist, 2016. "Causes and Consequences of Improvements in the Information Environment for Swedish Small and Mid-Sized Firms," Accounting in Europe, Taylor & Francis Journals, vol. 13(1), pages 21-42, April.
    6. Sakshi Sharma & Kunjana Malik & Manmeet Kaur & Neha Saini, 2023. "Mapping research in the field of private equity: a bibliometric analysis," Management Review Quarterly, Springer, vol. 73(1), pages 61-89, February.
    7. A. Heughebaert & T. Vanacker & S. Manigart, 2012. "Institutional Frameworks, Venture Capital and the Financing of European New Technology-Based Firms," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/809, Ghent University, Faculty of Economics and Business Administration.
    8. Nick Wilson & Mike Wright, 2013. "Private Equity, Buy-outs and Insolvency Risk," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 40(7-8), pages 949-990, September.
    9. Moritz Bassemir, 2018. "Why do private firms adopt IFRS?," Accounting and Business Research, Taylor & Francis Journals, vol. 48(3), pages 237-263, April.
    10. Desrousseaux, Luc, 2023. "Are activist hedge funds good business advisors?," Economic Modelling, Elsevier, vol. 125(C).
    11. Sofia Johan & Minjie Zhang, 2021. "Information Asymmetries in Private Equity: Reporting Frequency, Endowments, and Governance," Journal of Business Ethics, Springer, vol. 174(1), pages 199-220, November.
    12. Issam Benhayoun & Ibtissam Zejjari, 2024. "Exploring firm and individual-level determinants of IFRS for SMES adoption in Morocco, a diffusion of innovations’ perspective," Post-Print hal-04649937, HAL.

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