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http://hdl.handle.net/2451/27557
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| Title: | Venture Capital Financing and the Informativeness of Earnings |
| Authors: | Cohen, Daniel A.
Langberg, Nisan S. |
| Keywords: | Venture capital
earnings informativeness
ownership structure
investment horizon |
| Issue Date: | Dec-2006 |
| Series/Report no.: | Daniel A. Cohen-12 |
| Abstract: | Are there long-term costs to obtaining venture capital financing? We
explore the hypothesis that venture capital backed firms do not
efficiently transform to the corporate structure of public firms and
have difficulties publicly communicating with arm’s length
investors. Our results are three fold. First, we find that, on average,
reported accounting earnings are less informative for venture capital
backed firms. Second, the informativeness of reported earnings is a
decreasing function of venture capitalists’ ownership of firm
equity and a decreasing function of venture capitalists’ board
representation. Third, stock prices of venture capital backed firms
reflect future earnings to a lesser extent relative to non-venture
capital backed firms. Our findings support the hypothesis that venture
capitalists manage the flow of public information to capital markets and
preserve short term interests arising from specific investment and
ownership horizons. This evidence suggests that the benefits of
receiving venture capital financing are not without costs. |
| URI: | http://hdl.handle.net/2451/27557 |
| Appears in Collections: | Accounting Working Papers
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