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The Impact Of Accounting Standards Evolution On Executive Compensation

Posted on:2016-12-13Degree:DoctorType:Dissertation
Country:ChinaCandidate:H F XuFull Text:PDF
GTID:1109330482977993Subject:Financial management
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Entering the 21st century, the international harmonization and convergence of our accounting standards is an inevitable tendency. It is due to the economic globalization and complied with the great popularity of accounting standards evolution around the world. On February 15,2006, China’s Ministry of Finance issued a new accounting standard system which includes one basic standard and thirty-eight specific items. On January 1,2005, EU (European Union) members began to enforce the implementation of the International Financial Reporting Standards (IFRS). At the end of 2007, U.S. Securities and Exchange Commission (SEC) announced that the offshore listed companies could prepare their reports according to IFRS instead of US GAAP. In 2008, U.S. came to seek cooperation with the International Accounting Standards Board (IASB) to set a schedule for their convergence. In 2009 June, Japanese Enterprise Accounting Review Council published opinion book about using IFRS in Japan. By the end of 2014, there are more than 120 countries adopting IFRS or achieve IFRS convergence. The goal of the International Accounting Standards Committee (IASC) and International Financial Reporting Standards Foundation (IFRS Foundation) is to set up a suit of accounting standards with high quality and is easy to mandatory. Ian Ball, the general secretary of international federation accountants committee (IFAC), said that IFRS is primarily aimed at enhancing earnings quality and achieving a high degree of comparability of financial statements. It will be beneficial for internal decision makers to hold high quality information and to make decisions according to improved accounting information.A large body of research is devoted to understanding the causes and consequences of adoption of IFRS. Thus far, these literatures have focused almost exclusively on the expected or intended consequences of the informational benefits of the accounting standards evolution, such as the topics of capital markets efficiency and improve accuracy on equity revaluation. But accounting standards evolution might cause other indirect effects and unintended consequences are far lack of attention. Especially, few researches study the impact on business operation and management behaviors. Accounting information is the basement of business internal management, external trade and contractual establishment. Therefore, the study has important value to point the impact on entities internal compensation contracts facing to the accounting standards evolution.The agreement of executive compensation is the significant part of business internal contracts. Executive payment relied on the accounting earning information that was the foundation of performance assessed to enterprise managers. Therefore the earning information influenced the executive compensation necessarily after the accounting standards evolution. In recently years, high executive payment becomes the hot topic in the society. Executive compensation is one important mechanism of corporate governance and a necessary connect with business performance. Management payment can stimulate them to work hard for the maximization of shareholders’wealth. As accounting information is the evaluation basement of managers’performance and accounting standards are the directions of generation accounting earning information. So the accounting standards evolution should inevitably influence the establishment and decision of executive compensation.This paper studies on the accounting standards evolution of our country in 2006. These tremendous changes reflected both on contents and connotations. Such as accounting standards target changes from "agent responsibility" to "decision useful", the accounting standards conceptual basis from "income statement" centralized to "balance sheet" centralized, measurement methods from "historical cost" to "fair value". All of the transitions not only increase the quality but also improve the contractual usefulness of accounting information. But the research of accounting information compensation contract usefulness is less attention in current literatures. Our country accounting standards internationalization evolution provide us a good opportunity to analyze how the increasing information quality to impact the companies’executive compensation. The paper sample consists of listed companies in our country during ten years covered the revolution from 2003 to 2013. It based on the accounting information compensation contract usefulness to focus how evolution influenced the executive compensation. The research expects to extend the existing accounting standards research on microcosmic organizations, especially to discover other effects on indirect effects research and promote the accounting standards evolution research. This study has important practical value to reasonable assess executive performance and set executive compensation.The paper included four sections and seven chapters. The first section introduces research basis which includes Chapter 1 and Chapter 2. Chapter 1 is introduction that shows some research background, research meaning, and value of the dissertation. Literature Review in Chapter 2 summarizes the major review of researches on accounting standards evolution and executive compensation. The second theoretical research section includes Chapters 3 and Chapter 4. In Chapter 3 describes agency theory, optimal contract theory, relative performance theory and economic consequence theory to provide theoretical basis for executive compensation governance. Chapter 4 analyzes paths of the accounting standards revolution why and how to impact executive compensation. The third section is empirical study. Chapter 5 examines the lengthways of the accounting standards revolution affects pay-performance sensitivity. Chapter 6 tests the crossways of the accounting standards revolution influences relative performance evaluation. The forth section is research conclusions. In Chapter 7 summarize the main conclusions and give a number of recommendations on how to design the accounting standards and set reasonable executive payments, at the same time point the shortages of this research and raised the outlook for future research.According to the research tracks and content above, the paper indicates the following conclusions:Firstly, the amounting standards revolution affects the executive compensation through the contractual usefulness of accounting information. On the one hand, the new accounting standards improve the quality of accounting earning information that more accurately evaluate the effort level of companies’executives. So the changes can improve pay-performance sensitivity (PPS) and regard it as the lengthwise influence. On the other hand, consider the accounting earnings to be more comparable between difference companies. Therefore, other similar entities earnings have reference value to determine their own executive compensation. The revolution made the relative performance evaluation (RPE) used in the compensation contract as the external impact.Secondly, the empirical evidence indicates that a significant increase in accounting-based PPS in the post-adoption period. The market-based PPS is significant decrease in the post-adoption period. Then measure difference effect level by the revolution, the greater change of PPS in big-changed companies than in small-changed companies. So we can infer that the change of PPS derived from the accounting standards revolution. As the result, the revolution improves accounting earnings quality and increases its significance to help better appraise the executives’hard work. Addition considered the company’s ownership the PPS in non-state listed companies are more obvious improved than state-owned companies.Thirdly, by the increasing of the comparability of new accounting standards, the paper examines the application of RPE in executive compensation contracts in three situations. First, in the same market listed companies did not use the RPE. Second, in the same industry and same size corporations can find the evidence of RPE after the new accounting standard adoption. Third, in the same industry, size and ownership character the RPE is more obvious in unstate-owned company than in state-owned company. So the same kind company’s accounting earning information can be the benchmark for the improvement of accounting standards’comparability after the accounting revolution.The contributions of this study are as following:Firstly, the study extends the research boundary of the accounting standards evolution. Most prior studies on the IFRS focus on the decision usefulness of accounting information with perspective of the capital market and the external users such as investors. But the number of studies on contractual usefulness of accounting information is small. This paper, basing on the contracting usefulness of accounting information, is aiming to discover the difference paths of accounting standards revolution and how to affect the business executive compensation. Besides, it contributes the extant literature in economic consequences of accounting standards evolution and at the same time, enlarges the scope of research on accounting standards evolution.Secondly, it provides new evidences for how the institutional reform of accounting influences executive compensation, as reflected in pay-performance sensitivity and relative performance evaluation. The reform also improves the quality and comparability of accounting information. With the help of information and corporation governance, accounting and contract, the paper deeply analyzes the fundamental and path of the impact of executive compensation meeting the new accounting standards. The research should give basis and reference for the companies to design a reasonable executive compensation system.Thirdly, the study provides localization evidence with China listed companies’data to test how the accounting standards international convergence impact executive compensation with Chinese listed company samples. This thesis considers Chinese emerging capital market’s characteristics to study the specific influence. As a result, it presents the new economic consequence of IFRS adopted in emerging economies.
Keywords/Search Tags:Accounting Standards Evolution, Executive Compensation, Pay- performance Sensitivity, Relative Performance Evaluation
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