Leveraging the unique detailed bid data of institutional investors during the IPO process in China, we investigate how investors, especially institutional investors, react to the issuing firm’s pre-IPO earnings management (EM). Our findings suggest that institutional investors’ bid prices are negatively correlated with pre-IPO EM. The results are more pronounced for accrual-based EM than real EM. The findings are robust to a battery of different bid prices. We also document that retail investor oversubscription ratio is negatively or not associated with pre-IPO accrualbased EM. However, such oversubscription ratio is positively correlated with pre-IPO real EM. Additional results show that IPO offer prices (relative to the proposed IPO price range) are negatively correlated with pre-IPO EM, suggesting that institutional investors’ ability to recognize EM pressures IPO issuing firms into setting a lower offer price. Lastly, we find that, the long-run IPO performance is mostly unrelated to EM, which is different from what the literature depicts.