This study investigates earnings management of IPO firms in knowledge based industry. we analyse the relation between earnings management and R&D expense(Research and development expense)which is an important expenditure in knowledge based management. First, we found that the earings management is the largest in the year when the firm is enrolled on the market. Second, the IPO firms have higher DA(discretionary accruals) than existing firms on the market and the size of R&D expense is larger too. Finally, the higher accounting receivable and R&D expenses are the larger earnings management happened in the IPO firms. Our study show that the IPO firms of knowledge based industry have high R&D expenses which are cor expenditure. Also, earnings management has happened frequently in the IPO firms.