A Empirical Investigation In Financial Intermediaries Reputation And Pre-IPO Earnings Management

The earning management has been becoming a very hot area in internationalfinancial market in corporate governance since1990s. It is a very sma rt way forcompany to decorate their financial reporting no matter during the period thatpre-IPO or post-IPO. But this manipulation make a great obstacle for outsideinvestors to look for real valuable listed companies to invest their money becauseit increases the information asymmetry and result in adverse selection. So how tolimit and even eliminate earning management is becoming a tough question forwhatever the business world or the academe. There are some financialintermediaries in the IPO proceed to help company to go initial public offeringincluding venture capital, investment bank and account firm. The financialintermediaries create more and more effect during the period in helping companyIPO. So do financial intermediaries do their best to do due-diligenceinvestigation and keep a neutral position to prevent earning managementmanipulation? Or actually on the contrary they join the company partnership toencourage the action.In this paper we focus the effects of financial intermediaries to pre-IPOearning management base their special position in assisting company go IPOproceed. We choose264listed companies as samples from Oct.312009to Sep.162011in Growth Enterprise Market. We define a index named reputation to reflectthe financial intermediaries’ comprehensive strength while use the modifiedjones model and real active earning management model to estimate company’spre-IPO earning management level. Accord to compare mean test and multipleregression analysis, we try to find whether the financial intermediaries producerobust effect to limit the earning management. Particularly we examine therelation among investment bank, venture capital, accounting firm with Pre-IPOearning management. Our conclusion indicate the more reputable venture capitaland investment bank do not limit company earning management, to the contrarythey are more likely to encourage company to make earning management. We getthe same evidence when study the collaboration effect between the famousinvestment bank and reputable venture capital. But the more reputable account firm have a stronger reduction earning management.