The effect from accrual earnings management in private equity trade : a study of the Norwegian private equity market’s investments and divestments

Abstract

Our paper looks at account manipulation in private companies purchased and sold by private equity funds. We use a proxy for discretionary accrual earnings management to measure the degree of manipulation in accounting data, comparing the estimates with companies from the same industry and year. An estimate for nondiscretionary accrual earnings management is calculated using the modified- jones model, discretionary accrual is then assumed to be all parts of the total accrual earnings management not described by the nondiscretionary estimate. We have two separate datasets, one containing purchased portfolio companies and their comparable companies. The other dataset contains portfolio companies sold by private equity funds and their comparable companies. Information about equity transactions comes from the argentum research database and account information from each individual company comes from the SNF database (Norges Handelshøyskole and Samfunns- og næringslivsforskning AS 2017). From our proxy estimates we see no statistically significant persistence overall years or industries, this indicates there is no separable strategies for earnings management in companies owned by private equity funds compared to the market usage.