Pipes: A Theory of Private vs. Public Placements in Public Firms

SUMMARY This study examines the association between the office size of engagement auditors and their clients' future stock price crash risk, a consequence of managerial bad news hoarding. Using a sample of U.S. public firms with Big 4 auditors, we find robust evidence that local audit office size is significantly and negatively related to future stock price crash risk. The evidence is consistent with the view that large audit offices effectively detect and deter bad news hoarding activities in comparison with their smaller counterparts. We further explore two possible explanations for these findings, the Auditor Incentive Channel and the Auditor Competency Channel. Our empirical tests offer support for both channels. JEL Classifications: G12; G34; M49.

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Venturing beyond the IPO: Financing of Newly Public Firms by Venture Capitalists

The Journal of Finance ◽

10.1111/jofi.12879 ◽

2020 ◽

Vol 75 (3) ◽

pp. 1527-1577

Author(s):

PETER ILIEV ◽

MICHELLE LOWRY

Keyword(s):

Venture Capitalists ◽

Public Firms

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What Drove the Increase in Idiosyncratic Volatility during the Internet Boom?

Journal of Financial and Quantitative Analysis ◽

10.1017/s0022109010000487 ◽

2010 ◽

Vol 45 (5) ◽

pp. 1253-1278 ◽

Cited By ~ 77

Author(s):

Jason Fink ◽

Kristin E. Fink ◽

Gustavo Grullon ◽

James P. Weston

Keyword(s):

Investor Sentiment ◽

Idiosyncratic Risk ◽

Idiosyncratic Volatility ◽

The Internet ◽

Present Evidence ◽

Public Firms ◽

Specific Risk ◽

Increasing Trend ◽

Public Firm ◽

Firm Maturity

AbstractAggregate idiosyncratic volatility spiked nearly fivefold during the Internet boom of the late 1990s, dwarfing in magnitude a moderately increasing trend. While some researchers argue that this rise in idiosyncratic risk was the result of changes in the characteristics of public firms, others argue that it was driven by the changing sentiment of irrational traders. We present evidence that the marketwide decline in maturity of the typical public firm can explain most of the increase in firm-specific risk during the Internet boom. Controlling for firm maturity, we find no evidence that investor sentiment drives idiosyncratic risk throughout the Internet boom.

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