The Effects of Public Venture Capital Investments on Corporate Governance: Evidence from IPO Firms in Emerging Markets

18 Pages Posted: 14 Mar 2012

See all articles by Jengfang Chen

Jengfang Chen

Macquarie University

Woody M. Liao

University of California, Riverside

Chiachi Lu

National Central University - Department of Finance

Date Written: March 2012

Abstract

This study examines the impact of public venture capital (hereafter PVC) investments on corporate governance of initial public offering (hereafter IPO) firms in emerging markets. Using data collected from Taiwan PVC investments during 1996–2005, we analyse three corporate governance features in IPO firms: earnings management, board characteristics, and excess control by controlling shareholders. We find that PVC‐backed firms use fewer accounting accruals in their IPO financial statements than non‐PVC‐backed firms. This result suggests that PVC‐backed IPO firms engage in less earnings management than non‐PVC‐backed IPO firms. We also find PVC‐backed firms tend to set up their boards with fewer non‐independent directors and supervisors at IPO. This result indicates that PVC‐backed IPO firms have better board structures than non‐PVC‐backed IPO firms. Finally, we find that controlling shareholders are less likely to exert excess control in PVC‐backed firms than in non‐PVC‐backed firms. Overall, our results indicate that PVC investments add value to new IPO firms not only in financing their capital needs but also in creating better corporate governance structures in emerging markets.

Keywords: Board structures, Controlling ownership, Corporate governance, Earnings management, IPO, Public venture capital investments

Suggested Citation

Chen, Jengfang and Liao, Woody M. and Lu, Chiachi, The Effects of Public Venture Capital Investments on Corporate Governance: Evidence from IPO Firms in Emerging Markets (March 2012). Abacus, Vol. 48, Issue 1, pp. 86-103, 2012, Available at SSRN: https://ssrn.com/abstract=2021672 or http://dx.doi.org/10.1111/j.1467-6281.2012.00358.x

Jengfang Chen

Macquarie University ( email )

Woody M. Liao

University of California, Riverside ( email )

900 University Avenue
Riverside, CA 92521
United States
909-787-6541 (Phone)
909-787-3970 (Fax)

Chiachi Lu

National Central University - Department of Finance ( email )

No. 300, Jhongda Rd, Jhogli City, Taoyuan, Taiwan,
Jhongli, TY 32001
Taiwan

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
0
Abstract Views
1,603
PlumX Metrics