Empirical Study On The Tripartite Relationship Of Executive Incentive, Earnings Management And Enterprise Value

The incentive of the executives in enterprises is the core issue of corporate governance mechanism. Good incentive mechanism design system can effectively relieve the conflict of the company's principal - agent relationship and make the executives' own interests and the interests of business owners in line. However, in order to achieve the goal of maximizing their own interests, the executives, on the one hand, use their own knowledge and skills through their own efforts to improve business performance, on the other hand they have the motive to take advantages of the internal information. In the existing mechanism of the combination of executive compensation and executive incentive, It's the issue this paper intends to deal with that is whether the executives in the listed company can create a higher enterprise value and their purposes of conducting earnings management are to enhance the value of the enterprise on the basis of the enterprise's strategy or to damage the enterprise's value in order to make the private wealth maximized.On the basis of a deep study on the theory concerning executive incentive, earnings management, this paper firstly presents the analysis on the relationship of the above three aspects and builds the hypothesis of this research. And then the author selects the cross section data of the listed companies (267 in all) in Shanghai and Shenzhen A share market in 2007-2009 to study on after the implementation of new accounting standards. By using of EXCEL form processing and statistical analysis software SPSS employing OLS regression analysis and taking the top three total remuneration of senior management and senior management's ownership percentage of all Senior Managers as a proxy variable, the discretionary accruals calculated by the modified cross section Jones model as the measurement of the earning management of the listed companies and the published value of Tobin Q value in the annual report of the enterprise as the proxy variable, the author conduct a study on the tripartite relationship of executive incentives, earnings management and enterprise value. Finally, this paper presents the related policies and advice on account of the research output the author has achieved.The results indicate: 1) the total compensation of the top three executives is remarkably propotional to the extent of the earnings management, and has a reversed U-shape relationship with the enterprise value. 2) the rate of the executives'shareholding has no significant relationship with earnings management, but has a reversed U-shape relationship with the enterprise value. 3) the earning management of the listed companies has a reversed U-shape relationship. 4) the reasonable incentive machanism can make the executives process proper earnings management on the basis of the enterprise long-term interests, thus it is benefit to make the enterprise value promoted. 5)corporate governance factors and its financial index also have the direct and indirect influence to earnings management.