Does Public Ownership of Equity improve earnings quality

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1、THEACCOUNTINGREVIEWAmericanAccountingAssociationVol.85,No.1DOI:10.2308/accr.2010.85.1.1952010pp.195225DoesPublicOwnershipofEquityImproveEarningsQuality?DanGivolyThePennsylvaniaStateUniversityCarlaK.HaynUniversityofCalifornia,LosAngelesSharonP.KatzHarvardU

2、niversityABSTRACT:Wecomparethequalityofaccountingnumbersproducedbytwotypesofpublicfirms—thosewithpubliclytradedequityandthosewithprivatelyheldequitythatarenonethelessconsideredpublicbyvirtueofhavingpubliclytradeddebt.Wedevelopandtesttwohypotheses.The‘‘dema

3、nd’’hypothesisholdsthatearningsofpublicequityfirmsareofhigherqualitythanearningsofprivateequityfirmsduetostrongerdemandbyshareholdersandcreditorsforqualityreporting.Incontrast,the‘‘opportunisticbehavior’’hypothesispositsthatpublicequityfirms,becausetheirman-

4、agershaveagreaterincentivetomanageearnings,havelowerearningsqualitythantheirprivateequitypeers.Theresultsindicatethat,consistentwiththe‘‘opportunisticbehavior’’hypothesis,privateequityfirmshavehigherqualityaccrualsandalowerpropensitytomanageincomethanpubli

5、cequityfirms.Wefurtherfindthatpublicequityfirmsreportmoreconservatively,inlinewiththeirgreaterlitigationriskandagencycosts.Keywords:accruals;conservatism;earningsmanagement;earningsquality;privateandpublicfirms.DataAvailability:Dataareavailablefromsourcesiden

6、tifiedinthestudy.WearegratefulforconstructivecommentsbyFabrizioFerri,BjornJorgensen,StevenKachelmeier(editor),KarlMuller,DoronNissim,StephenPenman,twoanonymousreviewers,membersoftheU.S.SecuritiesandExchangeCommission,andparticipantsofaccountingworkshopsatC

7、olumbiaUniversity,IESEBusinessSchooloftheUniversityofNavarra,theUniversityofNorthCarolina/DukeFallAccountingConference,UniversityofPenn-sylvania,andWashingtonUniversity.Allerrorsareours.TheauthorsgratefullyacknowledgefinancialsupportprovidedbytheHaroldandP

8、aulinePriceCenterforEntrepeneurialStudiesandtheUCLAAndersonSchoolofManagement.Editorsnote:AcceptedbyStevenKachelmeier.Submitted:May2008Accepted:May2009PublishedOnline:January2010195196Givoly,Hayn,andKatzI.INTRODUCTI