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Journal of Corporate Finance Vol. 18 No. 1 2012

The effects of venture capital syndicate diversity on earnings management and performance of IPOs in the US and UK: An institutional perspective

Salim Chahine1; Jonathan D. Arthurs2; Igor Filatotchev3,4; Robert E. Hoskisson5

1 American University of Beirut · 2 Washington State University · 3 City, University of London · 4 Vienna University of Economics and Business · 5 Rice University

open access

Abstract

This study examines the extent to which principal–principal agency conflicts within venture capital (VC) syndicates lead to additional principal–agent conflicts in IPO firms in two institutional contexts. Using a matched sample of 274 VC-backed IPOs in the US and the UK, it shows that the diversity of a VC syndicate increases pre-IPO discretionary current accruals, used as a proxy for earnings management, but the impact of such diversity is higher in the US. There is also evidence of higher underpricing and lower aftermarket performance in firms with higher earnings management and VC diversity, and these negative performance effects are also higher in the US. Our findings indicate that local and informal institutions have a significant effect on multiple agency conflicts in IPO firms and performance outcomes.

DOI
10.1016/j.jcorpfin.2011.11.007
Volume
18
Issue
1
Pages
179-192
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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