The Empirical Study on the Relationship of IPO Lockup, Earnings Management and Venture Capital

Abstract

Earnings management occurs when management ’ s autonomy allows managers to change the surpluses and then mislead investors about potential company ’ s performance and quality. According to the sample of 330 listed companies on the GEM, we use the event study and modified Jones model to measure variables and then find that the market investors can guard against the earnings management behavior by observing the abnormal reverse volatility of the IPO stock lifting period, which can be looked as a negative signal. In addition, the study also finds that the IPO firms supported by venture capital institutions have stronger earnings management at the lockup expiration period. Moreover, the state-owned background and high reputation of venture capital institutions has negative regulation function, which can supervise and audit the earnings management behavior of enterprises after IPO, thus weakening the negative volatility of the market. From the point of view of signal theory, this paper probes into the negative signals of earnings management behavior of IPO during the lockup expiration period, and has a better understanding of the transfer of negative signals.