Private Equity Investment Influence On IPO Earnings Management Research

In recent years. Private Equity Investment played an increasingly vital role in the economic development. Questions about PE also attracted the capital market’s attention, with relevant scholar researches emerging along with it. The establishment of Shenzhen Growth Enterprise Market in October,2010, is a symbol of preliminary effect of China completing a Multi-level Capital Market. The Growth Enterprise Market is not only a financing platform for growth enterprises to collect development finance, but also an exit for domestic private equity investments to realize their profit. Therefore more and more private equity investments choose to assist emerging enterprises to go IPO in order to gain rich return out of it. However, many enterprises manipulate earnings management to window-dress financial statements to meet IPO criteria and attain the scarce IPO qualification. This behavior does not only decrease efficiency of resources allocation in capital market, but also jeopardize the healthy development of Growth Enterprise Market.Theoretically, private equity investment, as a supplement financing method of securities and banks, may reduce information asymmetrical and the principal-agent issues, and promote company governance level and industrial structural optimization, deepen China’s capital market, and expand financing channels. In fact, although the private equity investment is now active in China, but it is still at the initial stage as an import from the mature Western capital market. Whether this kind of investment can truly assist enterprise’s long-term management, whether it can help theoretical research of Chinese Emerging Enterprise development, still remains to be carefully thought and researched.In this article, we selected 333 companies listed in Shenzhen Growth Enterprise Market from 2009 to H1 2012 as objects of study, and made empirical test on influence relation between PE investments and IPO earnings management of companies in Growth Enterprise Market. First we conducted the empirical study of influence between PE’s participation and enterprises’ earnings management, then study on the PE investment percentage, goodwill of the PE fund, as well as term of investment and other aspects influencing earnings management. The findings showed that the existence of private equity investment can suppress the earnings management activity in a certain extent, especially the term of investment will reduce the earnings management action before IPO, but ownership percentage and goodwill of such PE investment have not actually displayed the corresponding supervision and authentication functions.