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


Jengfang Chen ( is an Associate Professor in the Department of Accounting, National Cheng Kung University, Woody M. Liao ( is a Professor in the Department of Accounting and Information Systems, University of California, Riverside, and Chiachi Lu ( is an Assistant Professor in the Graduate Institute of Accounting and the Department of Finance, National Central University.


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.