Private Equity Involvement and Earnings Quality
Beuselinck, Christof Deloof, Marc Manigart, Sophie
Beuselinck, Christof
Deloof, Marc
Manigart, Sophie
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Publication Type
Journal article with impact factor
Editor
Supervisor
Publication Year
2009
Journal
Journal of Business Finance and Accounting
Book
Publication Volume
36
Publication Issue
5/6
Publication Begin page
587
Publication End page
615
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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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Keywords
Corporate Finance, Mergers & Acquisitions