Study On The Relationship Between Managers' Incentive Compensation And Earnings Management In Family-Controlled Listed Companies

Management incentive compensation based on accounting management was implemented in England first in 19th century. Then the whole Europe area, America and Janpan followed this method. Management began to carry on the behavior of earnings management for their greatest rewards. In recent years, scholars have begun to study on the relationship between executive pay and earnings management. But the conclusions are inconsistent. And the research scope is not also comprehensive, such as he relationship between family-controlled listed companies'manager compensation incentive and earnings management. Considering the particularity of the family enterprise and its significant contribution to national economy, it's necessary to research it. This paper starts from the unique perspective and try exploring the relationship in order to getting some enlightenment.Firstly, this paper analyzes previous related literatures. and take shape the chart in foundation of them, analyze the theoretical basis and motivation of earnings management and the theoretical basis and necessity of incentive; then investigate current earnings management situation in family-controlled listed companies with the method of single sample T-test, finding that there are significant earnings management behavior in family-controlled listed companies. On this basis, this paper uses empirical methods to inquire the relationship between managers'incentive compensation and earnings management in family-controlled listed companies. This paper uses family-controlled listed companies of Shanghai stock exchange in 2009 and 2010 as the total study sample. I finally get 378 valid data of 189 companies in two years, and further divide the whole sample into A and B subsamples by the standard of manager's origin in order to get their differences. In the process of research, modified Jones model is used to test the whole and subsamples. The conclusions are as following:the higher manager compensation, the lower earnings management; there is no significant correlation between managers'shareholding ratio and earnings management; family managers' compensation hasn't significant relevance with earnings management, while professional managers'compensation has a negative correlation with earnings management. Lastly, suggestions have been raised like these:companies should improve the management incentives mechanism, strength the long-term incentive mechanism, such as stock incentive; corporate governance structure should be improved, the manager's power should be effectively checked and balanced; regulatory authorities should strengthen the information disclosure mechanism in order to enhance the quality of information which is disclosed; Interested party should work together to establish a normalized professional manager market.