Business, Management and Accounting
4 years ago

Reputable financial institutions curb earnings manipulation in IPOs, study finds.

Journal of Corporate Finance
Do more reputable financial institutions reduce earnings management by IPO issuers?
Gemma Lee, Ronald W. Masulis

Paper Summary

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The study looked at whether reputable financial institutions can help prevent companies from manipulating their earnings when going public. They found that well-known investment banks and venture capital investors can reduce earnings manipulation by companies during initial public offerings. While not all venture capital investors have this effect, the ones with good reputations do. When reputable investment banks and venture capital investors work together, they can further decrease earnings manipulation by companies. This shows that the reputation of these financial institutions can help ensure the accuracy of financial reports from companies going public.