Post Investment Demand for Accounting Information by Venture Capitalists

Financial Reporting Quality in Private Equity Backed Companies: The Impact of Ownership Concentration

“…While PE investors especially focus on the quality of the internally reported information (Mitchell et al, 1995;Kaplan and Stro¨mberg, 2004), we argue that the improved quality of internal information equally leads to improved quality of externally presented accounting information. While presenting two sets of performance figures -one for internal use and one for external use -is common practice in large companies, this practice induces higher accounting and audit costs which may be excessive for small, private companies (Ball and Shivakumar, 2005).…”

“…In addition, PE investors have informal contacts with the entrepreneur and key managers and they require structured interim information between board meetings (Beuselinck et al, 2006). Finally, they accelerate the introduction of a professionally developed, controllable financial reporting and internal control system in their portfolio companies (Davila and Foster, 2005;Mitchell et al, 1995).…”

Management control systems in innovation companies: a literature based framework

“…Therefore results control is appropriate in order to ensure that tasks are accomplished as agreed on and that organisational members strive for the achievement of organisational objectives. It has been shown that venture capitalists use their power over their investee's management in order to influence the type of information they receive, its quality and frequency (Sweeting 1991;Mitchell et al 1995;Wright and Robbie 1996). Furthermore it has been reported that VC financing is positively related to the use of financial budgets (Bruining et al 2004), operating and cash budgets (Davila and Foster 2005) and more frequent reporting (Robbie et al 1997;Bruining et al 2004).…”

Private Equity Investments and Disclosure Policy

“…Publicly available information may therefore only be of minor importance to reduce information asymmetries. Nevertheless, prior studies suggest that PE investment decisions are based upon the availability and dissemination of accounting information (Mitchell et al, 1995;Manigart et al, 2000). We therefore hypothesize that entrepreneurial firms use increased financial disclosure as a signal of their quality towards potential investors.…”

“…Given the potential agency problems in a PE -entrepreneurial context, PE investors have a substantial post-investment demand for information, which may be particularly focused on accounting information (Mitchell et al, 1995;Kaplan and Strömberg, 2003). Davila and Foster (2005), for instance, identify the introduction of internal management accounting systems in entrepreneurial firms as a direct consequence of this increased information demand by PE investors.…”