Do Venture Capitalists Monitor the Behavior to Earnings Management in Initial Public Offerings?

Prior studies indicate many firms have incentives to increase earnings in IPO year. Studies also demonstrate that VCs play a general monitoring role in their portfolio companies. Combined these two concepts, I expect that IPO-year abnormal accruals are lower in the presence of VCs for a sample of 330 IPO firms during 2003-2006. According to my empirical result, VC-backed IPOs present lower degree of earnings management. My study then expects to observe the proxies for VC’s incentives and ability to monitor. I find out the longer VCs invest in their portfolio companies, the more abnormal accruals firms will have in IPO year.