Research On Overestimation Of Equity Value,Earnings Management And The Reduction Of Venture Capital

With the continuous development of the GEM market,more and more venture capital all-roundly participates in the development and listing financing of start-up enterprise.And it plays a vital role in determining the capital structure,deploying of external operations and integrating internal resources in the start-up enterprises.Venture capital is regarded as a bridge between franchise and ownership,to promote healthy interaction between entrepreneurs and investors,and gradually becomes the core financial intermediary elements in the capital market.The reduction of shares is a vital part of the trajectory of venture capital investment.As we all know,The company’s stock price is the most critical factor in determining whether the venture capital is reduced or not,The overestimation of equity value is an important opportunity for venture capital to obtain excess returns.Earnings management is often an important means of transferring the benefits by the insider of the equity value overestimation firms.When the company’s equity value is overvalued,as an important insider,venture capital may rely on its own information advantage,use the means of earning management to raise the stock price,and take the opportunity to accurately reducte its shares,so as to obtain excess investment income.It is a serious infringement of the interests of small investors.Therefore,It is of great theoretical and practical significance to study the relationship of the overestimation of equity value,earnings management and the venture capital reduction.Firstly,This article clearly defines the related concepts of the overestimation of equity value,earnings management and venture capital reduction.It systematically elaborates the theoretical basis of insider trading theory,information asymmetry theory and behavioral finance theory.Using comparative analysis and historical review of the research methods,This paper sorts out and summarizes the relevant research literature at home and abroad,and made a preliminary inference on the relationship of the overestimation of equity value,earnings management and the venture capital reduction.Secondly,Based on the basic situation of China’s venture capital reduction,This paper introduces the main ways and the performance of China’s venture capital reduction,explore the possible motivation of reductions in venture capital,systematically analyzes the precise timing ability of venture capital reduction.Then,we make a comprehensive analysis on internal mechanism of the equity value overestimation,earnings management and the venture capital reduction,to lay a solid theoretical foundation for further research.Thirdly,This article selects the GEM listed manufacturing companies as samples to analyze the interaction of overvaluation of equity,earnings management and the reduction of venture capital.The empirical analysis reflects that:(1)With the increasing degree of overvalued equity,the sum of earnings management become greater,and the company’s main earnings management mode gradually change from the accrued earnings management into real earnings management;(2)Accrued earnings management has little effect on the reduction of venture capital,but real earnings management has a significant impact on the reduction of venture capital.(3)We find that the greater equity is overestimated,the more significant effect it has on the reduction of venture capital.It indicates that venture capital plays the role of financial investor rather than strategic investor in the capital markets,This conclusion enriches the equity agency theory and the theory of insider trading,and it provides an empirical basis on the governance of venture capital.Finally,This paper puts forward the policy suggestions from three aspects: improving the risk management mechanism of corporate equity,restraining the earnings management behavior of listed companies and standardizing the venture capital reduction mechanism.We hope the policy suggestions can provide reference and inspiration on regulating insider trading,inhibiting the earnings management of listed companies,and improving the venture capital market mechanism.