Financial Reporting Quality at IPOs Backed by Listed Private Equity Firms

Abstract

Some private equity firms list their shares in stock exchanges and commit to regular and extensive public disclosures. In contrast, unlisted private equity firms contract and communicate privately with partner investors. We test whether capital markets benefit more from the public reporting model of listed private equity firms by comparing the reporting quality of IPO companies that are backed by listed private equity firms with those that are backed by unlisted private equity firms. We find that IPO companies that are backed by listed private equity firms report lower abnormal accruals, recognize losses faster, and experience higher post-IPO stock returns. The findings suggest that the public reporting model of listed private equity firms brings greater capital market benefits than the private reporting model of unlisted private equity firms.