The Empirical Research On The Effect Of Private Equity On Real Earnings Management Of GEM IPOS In China

With the launch of the Growth Enterprises Market (short for GEM) in2009,more and more medium-sized enterprises obtain opportunities to solve the problem of financing difficulties, meanwhile, GEM provides a good channel for the exit of private equity (PE). From the perspective of the enterprises listed on the GEM, about60%of the enterprises get the support from PE in the pre-IPO. Many studies have shown that in the pre-IPO many companies "whitewash" their financial statements like earnings management behavior to satisfy the demands of IPO. But there is almost no research to study real earnings management. Based on this, from the perspective of PE, this paper study the effect of Private Equity on real earnings management of IPOs in GEM and through the analysis of the result of the empirical study, put forward the proposal about improving the GEM market system and building PE investment system.Through a systematic review on the basis of relevant theories and research literature at home and abroad, this paper adopts the method of empirical research and normative research to study companies which successfully listed in the GEM as the research object from2009to2012. This paper will look at the IPO prospectus of the company to find and estimate whether the IPO companies have PE’s stake. this paper measure real earnings management mainly from the following three points to present:sales control, production control and control of discretionary expenditure. Given the company may carry out real earnings management through the above three ways, so this paper also constructs the comprehensive index of real earnings management which is REM. Finally, through the establishment of the corresponding model and research hypothesis, this paper wish to conclude the relation between PE and real earnings management before the IPOs in GEM.In the theory analysis part, this paper introduces the definition of private equity investment, organization form and the development of private equity investment in China; The definition and characteristics of GEM in China; The definition Theoretical basis and methods of real earnings management; In addition, this paper also introduce the IPO effect of PE.In the empirical analysis part, this paper take companies listed in the GEM from2009to2012as the research sample, using multivariate linear regression model and variable data from2008to2011to regress. Because the sample size is small, this paper don’t delete the missing data, and further collect the relevant financial data through Hexun Website. Finally, this paper gets the data of355sample companies including PE intervention of204enterprises and non-PE intervention of151enterprises, which is the same as previous studies. this paper use Roychowdhury Model to predict real earnings management degree of the IPO companies. At the end of the paper, according to the related theory analysis this paper establish the corresponding research hypothesis and use multiple linear regression to get the final research conclusion.Empirical regression results show that the participation of private equity investment increase the real earnings management degree of the IPO companies before listing. This paper also find that the higher PE shareholding, the greater real earnings management degree. through consulting the company’s IPO prospectus, This paper find that the introduction of private equity investment happen in many companies in the previous year of IPO. the companies invested by PE in the previous year of IPO is valued as l,or valued as0.This paper study the differences of real earnings management degree in the two groups, and regression results obtained:real earnings management degree of the companies valued as1is higher, but no significant regression coefficient. considering the background of private equity investment characteristics, this paper find that foreign private equity could suppress the real earnings management degree before IPO, but the regression result is not significant. It illustrates the overseas development of PE, involved in the governance of listed companies, reduce the degree of real earnings management. Considering private equity joint utility, this paper find that the private equity joint venture may increase the degree of real earnings management before IPO.In this paper, the structure is divided into six parts, and main content of each part is as follows:The first part:introduction. On the whole, the paper introduced the research background and significance of this article, research methods, the main contribution, the research content framework and empirical research and the literature review and main innovation points of this article.The second part:the literature review, this part mainly elaborates real earnings management in the process of IPO, IPO effect of private equity investment, the influence of PE on earnings management and the choice of the ways of earnings management research, finally, the relevant literature and research results are summarized.The third part:the institutional background and theoretical analysis, this part introduces the definition of private equity investment, organization form and the development of private equity investment in China; The definition and characteristics of GEM in China; The definition Theoretical basis and methods of real earnings management; In addition, this paper also introduce the IPO effect of PE.The fourth part:study design. Through the previous related literature and discusses, put forward the research hypothesis; present the data sources and sample selection criteria; explain variables and control variables, and design the empirical model.The fifth part:the empirical result analysis. This part includes descriptive statistics and difference between test, correlation analysis and multiple regression analysis results to empirical verification of research hypothesis.The sixth part:the research conclusion, limitation and suggestions. According to the result of empirical test, this paper reveals the relation between PE and real earnings management before the IPOs in GEM. Then according to the research conclusion put forward appropriate policy recommendations; Finally the research insufficiency is summarized, and the direction of further research is pointed out.The contribution of this paper is mainly manifested in four aspects:1.due to the less developed domestic capital market, the prior research of the relationship between private equity and earnings management is less, and previous studies mainly take companies listed in small and medium-sized board as the research object, some scholars take companies listed in Hong Kong Stock Exchange or NASDAQ Stock Exchange as the research object, less research involve in the study of the GEM.2. previous research mainly study the relationship between venture capital and earnings management from the perspective of risk investment, but the research on private equity and earnings management is less, this paper use the generalized definition of private equity investment, studying its relationship with the real earnings management.3. in the research content of earnings management, most studies measure the level of earnings management as the accrued earnings management. The study about the relationship between private equity and real earnings management research is hardly involved. this paper measure the level of earnings management as the real earnings management, which is the most important contribution.4.this paper also analyzes the relationship between the characteristics of the private equity and real earnings management, which is also an innovation of this paper.