The Effect Of Venture Capital On Earnings Management

In recent year, Venture capital plays an important role in the development of global economy and academic research about VC also be the center of attention. The successful launching of GEM in Shenzhen makes contribution to our multi-level capital market system. GEM not only provides financial services for SMEs. but also supply a good way for the venture capital investors to exit their investment. So more and more venture capital choose helping SMEs to be listed on the GEM.so they can realize capital appreciation. However, in order to be listed on the GEM as soon as possible or raise the issue price, many enterprises take measures of earnings management to modify the financial statement. It hinders the capital market from playing a fundamental role in resources distribution and restricts the development of GEM.There are three main academic viewpoints about the effectiveness of VC: Certification hypothesis. Monitoring hypothesis and Grandstanding hypothesis. The first two viewpoints affirm the positive effects of venture capital, the third viewpoint holds a negative point of VC. So far academic has not yet come to a unified conclusion that which one seems to be in the ascendancy.In this paper, I select355SMEs listed on the GEM during October2009to October2012as the sample, in order to delve into the effect of venture capital on earnings management of GEM IPOs. Results of regression model show that earnings management is ubiquitous in GEM; VC-backed SMEs show less earnings management; even VC become important stockholders of IPOs-they don’t have positive effect on reducing earnings management of IPOs; and the "Grandstanding Effect" exists in Shenzhen GEM.