Empirical Study On The Effect Of Audit Opinion To Executive Monetary Incentive Contract

With establishment and continuous improvement of modern enterprise system in China gradually, in the context of corporate separation of ownership, monetary incentives, as an effective pay incentives, is playing an active role, guiding the objectives in business of senior management (the agent) consistent to its shareholders'(the principal), effectively reducing the agency costs. Effective monetary incentive pay could be effectively linked with corporate performance, and be implemented flexibly for the purpose of agency costs reduction. In the course of incentive contracts implementation, audit opinions, could be used to supervise and incentive the agent effective by the principal, for another, a way used to enhance the truth and reliability of their reported operating results by an agent, no doubt plays an important role. The importance of Audit opinions in salary motivation contract will be reflected in the affection to the correlation between business performance and salary currency.Audit opinions'important role in incentive contracts need to be based on the verification of correlation between business performance and salary currency. With the impact of audit opinions, senior manager cash compensation is more (less) sensitive to returns when firm performance is low (high), relative to senior manager pay-performance relation for intermediate firm performance.Effect of incentive pay for executives could exist only in a certain interval. When the performance exceeds the upper limit of incentives, monetary compensation will not be significantly increased. Beyond this range, the effect of incentive contracts will be reduced. It is the mechanical implementation of the monetary incentive contract.Furthermore, study also tests correlation between firm performance and executive cash compensation, considering audit opinion, on the aspect of empirical point of view. Result showed that the correlation between the type of audit opinion and executives cash compensation changes is not significant. This shows that, although the audit opinion could strengthen the financial data reported to the authenticity to a certain extent, support executives'(agents) work, and could be used to supervise and incentive executives (agents), audit opinions have not been considered as an important factor in the implementation of monetary incentives, in salary contracts of listed companies.In addition, in further empirical test, we found that the effect which is exerted by type of audit opinion on correlation between executives'cash compensation and corporate performance is significant. It can be concluded that the salary committee does not consider audit opinion as an important factor as it is expected. This is another way of saying the monetary incentive contract was mechanically enforced. Finally, this research proposes recommendations accordingly for the implementation of executives'cash compensation contract, Aiming at the problems found in empirical test.