The Impact Of PE's Industry Specialization On The Performance Of Invested Companies

Industry specialization is an important feature and development trend of PE firms.Foreign studies have already proved that through investing in certain particular industries,PE are able to gain more profound knowledge and abilities in areas such as the market,products and management,accumulate connections and social resources in particular industries,which enables them to select good companies when investing and provide more effective management,supervision and value-added services.Thus the companies invested by industry specialized PE have better governance mechanism and performance.Yet currently there is no literature research which directly discusses the role and mechanism of PE's industry specialization in corporate performance in China.Under the theory of certification and supervision,some scholars have found that PE will actively supervise and motivate the invested companies,reducing conflicts of interest and agency costs.Therefore,the companies invested by PE have a lower level of earnings management before and after IPOs.On the other hand,special organizational structure and limited duration will lead to moral hazards of PE.Some scholars have found that PE will enhance the earnings management so as to whitewash the financial performance information before and after listing in pursuit of fame.PE with different characteristics are divergent in investment motivation,management ability,and professional knowledge,so the degrees of PE's impact on enterprises are also different.This paper studies the role and mechanism of PE's industry specialization in corporate performance based on accounting information quality,and adds other individual and investment characteristics of PE into the regression test,which can enrich PE-related research and provide enlightening support for enterprise managers and the future development of PE.This paper combines theoretical analysis with empirical testing.In terms of theoretical analysis,this paper firstly introduces the concept and operational flow of PE,which lays a foundation for understanding the behavioral motives and characteristics of PE.Then it comprehensively expounds six classic hypotheses,theories and literature achievements on PE's role in enterprises at home and abroad.Based on the existing research in the field ofPE's industry specialization,it analyzes the role and mechanism of PE's industry specialization in corporate performance.In terms of empirical testing,this paper studies the impact of PE's industry specialization on corporate performance based on the manually collected data related to private equity investment of GEM IPOs as well as individual and investment characteristics data of PE including investment experience,management capital quantity,years of employment,background of funding sources,number of joint investments,holding period,shareholding ratio,dispatch of directors and supervisors,etc.,and further analyzes the impact mechanisms by combining with pre-screening and earnings management.The inclusion indicates that industry-specialized PE have a positive impact on enterprise performance,and can inhibit the accrual earnings management and real earnings management behavior,yet it fails to sort better companies beforehand;PE with rich investment experience also has a positive influence on enterprise performance and can help lower earnings manipulation;while an increased number of PE firms in joint investment shows a negative impact on enterprise performance and exacerbates real earnings management.This paper provides theoretical support for the industry specialization development of PE industry,enriching the literature research on PE and corporate performance.