| Earnings management has always been remained the focus of the listedcompanies, and profit is the first important motivation of earnings management.There are lots of researches on the relevance between executive compensation andearnings management traditionally, at the present time, there are more and morescholars finding that the listed companies do not only relay on the accrual earningsmanagement, but also the real earnings management. This phenomenon is moredistinct in the post-SOX period. According to the relevant literatures, this paperconducts an empirical test on the relevance of executive compensation and realearnings management (REM), and the significance of CEO to do the REM forrewards under the CEO power, based on the principal and agent theory, contracttheory, and asymmetric information theory.The result is that CEO reward is negatively correlated with the real earningsmanagement. In this paper, there are two variables, CEO compensation and CEOstock. The CEO compensation is significantly negatively correlated with REM; theCEO stock is also significantly negatively correlated with REM, except Abn_CFO.Another result about it is that after we add the CEO power and equity structure to themodel, the significance between CEO reward and REM is reduced a little, that alsomeans the power bring much more space for CEO to get money.All in all, the result of this paper shows that the CEO reward do be themotivation of earnings management, and the CEO compensation can restrain the levelof REM, the power can lower the motivation for CEO to do REM. We can explain itas the follows. On one hand, the higher rewards the managers can get, the moreconsistency about the value of companies they are, and besides that the REM will beharmful to the future of the company, so the CEO will prevent from the REM onlybecause of their own benefits. On the other hand, CEO has the ability to gain muchmore rewards through their power, which means they don’t need to share the risk todo the REM. |
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