An Empirical Study On The Management Compensation And Earnings Quality

People pay more attention to corporate earnings quality in recent years because of the high frequency accounting fraud. With the separation of ownership and management, managers may increase the value of earnings-based awards by earnings manipulation. This will constrain the company's sustainable development. So it is necessary to do a research on the relationship between management compensation and earnings quality, hope to provide some advice for the design of compensation contract and reduce management moral hazard.Based on pectination of the literature concerned, taking all the listed companies in China from 2002 to 2005 as the research samples, this thesis makes researches on the topic. The study find some results as follow. First, there is a significant negative correlation between management compensation and earnings quality. Second, the relationship become insignificant when managers hold some stock. Third, in state-owned enterprises the correlation is also insignificant. These results indicate that earnings management arises to increase the value of managers' earnings-based awards in our country. But managerial ownership can restrain the behavior. So, it is recommended that more attention should be paid to the earnings quality when design or evaluate managers compensation. And it is important to combine the earning-based compensation with stock option to form a constraint mechanism.The innovation of this thesis is that, most domestic research have found that management compensation and earning management didn't show a significant relationship. We adopt a new method the modified DD Model to measure the earnings quality and do the empirical study. And we find different results. Besides, we pay attention to the impact that managerial ownership and ownership property has on the correlation of cash compensation and earnings quality.