| PE (Private Equity Investment), as an important power of finance innovation and with a high increasing speed of itself, attracts widely attention these years. In developed countries, PE, with its solid professional basis, abundant investment experiences and enormous social network, in some degree, motivates the development of invested corporation. While in China today, PE usually chooses small and medium-sized enterprises that have growth potential and emerge in SME (Small and Medium-Size Enterprise) Board or GEM (Growth Enterprise Market) Board, as their investee for "pre-IPO" investment. However, it is questionable about whether "pre-IPO" can work as a restrain of investee’s earning management, an improvement of governance structure, an enhancement power of investee’s quality of accounting information and corresponding reaction of market.This paper focuses on how PE investment will impact investee’s choice of earning management, and whether it will further impact investee’s IPO-underpricing. In this paper, both theoretical analysis and evidential investigation are involved to solve the above problems. To be specific,333companies in GEM from October2009to June2012are taken as an evidential research object, used to build accrual earning and actual earning management models. Moreover, analysis based on the models and data will help to point out the differences in choice of earning management, between companies with and without PE participation. Besides, interaction model built on this foundation will also be used to find out how PE influences IPO through earning management chosen.The research results turn out that, in listed companies of GEM, both accrual earning management and real earning management exist. While companies with PE participation, will restrain accrual earning management and encourage real earning management to some extent, which will impair the quality of earnings, lead to lower offer pricing of company and finally result in higher IPO-underpricing restrain of the PE invested companies in weak investment active circumstance. Reasons of this PE behavior come out of theoretical analysis and evidential investigation are listed as following:1) Motivation of PE. PE in China today is in pioneering competition period, which causes PE pays more attention to make and maintain reputation. Under the drive of reputation chasing and risk avoiding, it is nature for PE to take action to restrain high adventure accruals earning management, to put immature company into market in advance, to make sure they can drop out safely after lock-up period and be safe to obtain profits.2) Capability of PE. PE, as special shareholder before listed, is quiet familiar with Financial Reporting Standards, IPO Requirements and Standards. Therefore, PE knows how to take advantage of their experiences in related to industry to control the real earning management method like selling, production and costs, to help company achieve the earning thresholds of the listed standard in a more secrete way.3) Approaches of PE. PE, though investment of stock rights, will have a voice in company decision making, thus will give advices and help implements in choosing the methods of earning management.In conclusion, under the consideration of the profits of themselves, PE in China hasn’t work like "Identification" like it works in developed markets. In detail, PE in our country brings no value-added services for their invested companies, no restrain of earning managements, no improvement for the quality of accounting information and no active influences on the offer pricing and first day trading for GEM companies. On the contrary, PE brings stirring of the new stock on the first day, and bad impacts on the long-term development of the company and the resource allocation in capital market. To the above question, advices in GEM mechanism setting, PE, IPO intermediary agent and Entrepreneur, these four aspects are given in this paper, hoping PE will develop healthily and act actively in the market. |
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