Ticking Profits: The Countdown That Haunts VCs and Spurs Firm R&D Manipulation

The literature debates whether venture capitalists (VCs) monitor firms or encourage unethical behaviour. One neglected issue is R&D manipulation, through which firms misrepresent R&D activities to obtain government policy benefits. Drawing on fraud triangle theory, this study uses a machine‐learning‐based bunching method to examine the relationship between VC proximity to exit and firms' R&D manipulation, as well as the moderating roles of VC pressure, influence, and reputation. We find that VC proximity to exit is positively associated with firms' R&D manipulation. Higher VC pressure and greater VC influence strengthen this relationship; surprisingly, stronger VC reputation does so as well. Heterogeneity analyses suggest that this positive association is particularly evident among firms backed by non‐government‐funded VCs and firms with lower industry market positions. We also find that firms near the bunching threshold when VCs are closer to exit do not exhibit corresponding innovation outcomes. These findings clarify the governance role of VCs, enrich research on innovation‐related misconduct, and offer implications for regulatory governance and innovation management.