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Accounting Review


accruals; conservatism; earnings management; earnings quality; private and


  1. Dan Givoly
  2. Carla K. Hayn
  3. Sharon P. Katz




    We compare the quality of accounting numbers produced by two types
    of public firms—those with publicly traded equity and those with privately held equity
    that are nonetheless considered public by virtue of having publicly traded debt. We
    develop and test two hypotheses. The ‘‘demand’’ hypothesis holds that earnings of
    public equity firms are of higher quality than earnings of private equity firms due to
    stronger demand by shareholders and creditors for quality reporting. In contrast, the
    ‘‘opportunistic behavior’’ hypothesis posits that public equity firms, because their managers
    have a greater incentive to manage earnings, have lower earnings quality than
    their private equity peers. The results indicate that, consistent with the ‘‘opportunistic
    behavior’’ hypothesis, private equity firms have higher quality accruals and a lower
    propensity to manage income than public equity firms. We further find that public equity
    firms report more conservatively, in line with their greater litigation risk and agency


    Vol 85, Nomor 01, Tahun 2010


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