Private Equity Ownership and Financial Reporting Quality

• In Event: Research with an Impact on Scholarship: Disclosure and IPO's

Abstract

I study whether private equity (PE) ownership affects portfolio firms’ financial reporting quality by examining the occurrence of restatements and SEC enforcement releases of PE-backed firms in the post-IPO period. Using a sample of firms that went public between 1998 and 2015, I find that PE-backed firms are more likely to engage in restatements during the five-year post-IPO period than non-PE-backed firms. The restatements received by PE-backed firms are more material, i.e. more likely to have a larger impact on net income or with longer duration. Furthermore, PE-backed firms are more likely to be subject to Accounting and Auditing Enforcement Releases. Cross- sectional analyses suggest that PE ownership weakens portfolio firms’ financial reporting quality due to short investment horizons and collusion between board and executives. Overall, this paper provides new insights into the opportunistic influence of PE firms.

Author

• Shuyang Wang, University of Illinois-Urbana-Champaign