Empirical Study Of The Relationship Between Venture Capital And Earnings Management Of IPOs

In recent years, China’s capital market develops rapidly and becomes mature and perfectprogressively. More and more enterprises go public to raise funds so as to acceleratedevelopment. However, due to exists of demand motivation and contract motive of capitalmarket, management layers of listed Corporations would conduct earnings management tocontrol corporate finance during the IPO process, which greatly damaged the interests ofinvestors and Related interests body. There exist IPO effects universally in the course of IPO;however, the certification and supervision of venture capital will reduce the earningsmanagement behavior of companies.This paper selected276companies listed from2009to2011in Shenzhen growth enterprisemarket and108companies listed from2001to2011in Honkong growth enterprise market asstudy samples. The writer firstly divided the companies of each board into two groups—VC-backed companies and Non-VC-backed companies, and then made a descriptive analysis offinancial index for the two different groups of each market. Secondly the writer comparedsimilarities and differences on company performance between VC-backed groups andNon-VC-backed groups of each board before and in the process of IPO. Meanwhile, the writeralso needed to find out if there exist notable differences between the two boards. Finally thewriter set up modified Jones model and multivariate regression model to test and verify thehypothesis proposed in the paper. By empirical analysis, the writer achieved some conclusionas follows:1.There generally existed earnings management behaviors in the process of IPO inthe two boards.2. The degree of earnings management of VC-backed companies was lower thanthe degree of Non-VC-backed companies in both boards, which indicated venture capital hasinverse relation to earnings management.3. There were differences on company operatingperformance between the year before IPO and the year listed both in two boards.4. There existedcertification and supervision effect of venture capital in both boards, but the role was notsignificant; meanwhile, the effect of venture capital was distinguished in the two boards. At last,the writer proposed some policies and suggestions to strengthen guard against earningsmanagement behaviors and develop venture investment industry according to the conclusion.