The Interaction between Institutional Investor Beliefs and Earnings Management during IPOs

摘要

In this paper, we exam firm‘s incentive to manage earnings raising external capital varies with investor beliefs. Under the spline specification regression: a firm is more likely to management earnings when investors are more optimistic about the industry prospects, but more reluctant when investor belief is low. We evaluate monitory cost to explore the reasons and find that using venture capitalists as specialized investors with lower monitoring costs than other institutional investors, earnings management is less likely for low investor beliefs but more likely for high investor beliefs for VC-backed firms relative to non-VC-backed firms. We can also obtain the same results as former study that auditor‘s quality negatively related with earnings management.