The Empirical Research Of Venture Capital And The Extent Of Earnings Management By SMEs In The IPO Process

In 2009, the launch of the ChiNext stock market reduces the listing requirements of SMEs which meet innovative and high technology standard. And the ChiNext market provides a vast financing platform for SMEs, also provides a good exit mechanism for venture capital. It made the development of venture investment take a big step. In addition, due to the rarity of listing qualifications and the expectation of maximizing financing, earnings management behaviors normally exist in the initial public offering process. Therefore, the research sample of this article is the listed companies which issued in the SME board and the ChiNext board between October 2009 and February 2010. The paper uses empirical research method to test and verify the venture capital can reduce the extent of earnings management. And the paper also distinguishes the lower and higher reputation venture capital institutions and tests the impact of venture capital institutions could reduce the earnings management if or not.For small and medium enterprises in the SME board and ChiNext board, the empirical study showed that venture capital preferred to invest in the high-tech industries and emerging industries. Compared to non risk investment background companies, the earnings management of VC-backed companies during initial public offerings was lower. It's suggested that venture capital could play a role in constraining management's incentives to manage earnings upwards during IPO process. Moreover, venture capital institutions would take good reputation into consideration and play an inhibitory effect to the control of earnings.