The Research on Venture Capital’s Effect on Earnings Management of Listed Companies of GEM before IPO: Evidence from China

Abstract

This article selects IPO firms of China GEM in 2009-2014 as the research object, using cross sec-tional modified Jones model to measure accrued earnings management, with the multiple regres-sion method to discuss the effect of venture capital (VC) on earnings management before IPO. It shows that there is negative correlation between single VC and the earnings management before IPO, but no significant correlation between joint VC and the earnings management before IPO. This result is robust. In conclusion, single VC plays the role of certification and monitoring. While because of the incompleteness of the contracts, there are conflicts in the joint VC. It prevents joint VC from inhibiting the action of the earnings management.