Earnings management and long-run stock performance following private equity placements

We investigate whether the documented earnings management preceding public equity offerings applies to private placements of equity. We also investigate whether earnings management can help explain long-run stock performance following private placements. Our main findings are: (1) little evidence of upward earnings management around private equity placements, and (2) little predictive power of abnormal accruals for long-run stock performance following private equity placements. These results suggest that earnings management is not responsible for post-offering underperformance, if any, for firms issuing equity privately. Our results are robust to two alternative measures of earnings management and three measures of abnormal returns estimated over two sample periods.