Off-campus UNL users: To download campus access dissertations, please use the following link to log into our proxy server with your NU ID and password. When you are done browsing please remember to return to this page and log out.
Non-UNL users: Please talk to your librarian about requesting this dissertation through interlibrary loan.
The effect of venture capitalists on accruals, accounting methods, and the informativeness of earnings of newly public companies
Abstract
Accounting information is provided to the public by managers of companies who have situation specific incentives to alter the profile of that information. In connection with initial public offerings (IPOs), managers may attempt to influence the offering price of new securities by altering the profile of accounting information reported in the prospectus. This study investigates whether venture capitalists influence the accounting choices of the companies they fund. The association between newly-public companies and venture capitalists is consequential because venture capitalists (1) intensively monitor the management teams of the companies they fund, (2) hold board seats on those companies and often control the board of directors, (3) have reputation capital at stake, and (4) typically have backgrounds as accountants or bankers, suggesting that they possess the requisite knowledge to scrutinize managers' accounting choices. Drawing upon these observations, this study predicts that venture-capital-backed (VCB) firms, relative to non-VCB firms, will (1) record smaller discretionary accruals in the pre-offering and offering periods, (2) record discretionary accruals in the pre-offering and offering periods that have a positive (or non-negative) association with the change in future earnings, and (3) make accounting method choices which facilitate firm valuation by prospective investors. As a consequence of venture capitalists' influence on accounting choices, the earnings figure reported by VCB firms is expected to be more informative about underlying firm value than the earnings figure reported by non-VCB firms. The results of this study indicate that VCB firms record larger, not smaller, discretionary accruals than their non-VCB counterparts in the pre-offering period. However, discretionary accruals of VCB firms in the pre-offering period have a non-negative association with the change in future earnings while this association is negative for non-VCB firms. This finding suggests that VCB firms record discretionary accruals to increase the informativeness of the earnings figure, while non-VCB firms record discretionary accruals to bolster earnings in the pre-offering period at the expense of earnings in subsequent periods. Results relating to accruals in the offering period and to accounting method choices and the informativeness of earnings do not support the hypotheses.
Subject Area
Accounting|Finance
Recommended Citation
Jackson, Scott Bryan, "The effect of venture capitalists on accruals, accounting methods, and the informativeness of earnings of newly public companies" (1997). ETD collection for University of Nebraska-Lincoln. AAI9734619.
https://digitalcommons.unl.edu/dissertations/AAI9734619