VC political connections and IPO earnings management

Wang, Qing (Sophie), Hamish Anderson and Jing Chi

Emerging Markets Review, 2018, vol. 35, issue C, 148-163

Abstract: We examine the effect of VC political connections on accrual and real earnings management (EM) of IPOs controlled by private entrepreneurs in China. We find IPOs backed by government-controlled VCs exhibit severe IPO-year EM, which is driven by those VCs exiting their investments immediately after the VC lock-up expiration. In contrast, IPOs with politically connected private VCs have lower IPO-year EM and are not associated with VC exits. Therefore, IPOs with government-controlled VCs who immediately exit their investments are most likely to engage in ‘window-dressing’ of financial performance, and to have poorer long-run stock performance. The results remain unchanged after a battery of robustness tests.

Keywords: Earnings management; Venture capital; Political connections; VC exits (search for similar items in EconPapers)
JEL-codes: G24 G32 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:35:y:2018:i:c:p:148-163

DOI: 10.1016/j.ememar.2018.02.005

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