Empiircal Research On Correlation Between Profit And Loss Form Fair Value Changes And Executive Compensation Of Listed Companies

The introduction of new fair value in Accounting Standards for Enterprises in jan.1has madegreat structural changes in financial statements of China. Changes in fair value gains and lossesand asset impairment losses are included in the income statement. Existing corporate governance,company performance is generally used as a proxy variable of the management effort and abilityto become an important component of corporate performance in the fair value of the introductionof its division of standards and transaction timing with the management closely related to the levelof effort and manipulation in order to improve their own salary to provide the opportunity forprofit as the main managers of accounting policy choice.From the perspective of China’s financial markets, more and more enterprises will focusmore on financial instruments such as stocks, bonds and financial derivatives. On the one hand,holding financial instruments will help improve the efficiency in the use of idle assets, but on theother hand, it will increase the investment risk. Especially those financial instruments for tradingpurposes, the revenue risk they will generate are significantly higher than the profits of otherprofits of the enterprise. As the senior managers responsible for investment gains and lossesShould assume corresponding responsibility.Then whether the existing salary contract mechanismhas effective constraint on executives’ speculation? Should the executives pay the penalties for thedeficit caused by investment in high-risk financial instruments?Based on a sample of the changes of fair value in A-share listed companies from2007to2008, this essay focus on the study of the impact of fair value measurement on executive compensation, and adopt a group division test on the changes in fair values and changes in fairvalue included in capital surplus, to find out whether these two types of changes in fair value havedifferences on executive compensation. The main conclusions are: changes in fair valuesrecognized in the income statement are significantly associated with executive’s payment, thisindicated that the listed companies in China pay great attention to the measurement of fair valuemeasurement on the executives’ level of effort. The authenticity of the surplus net of changes infair values on the impact of executive compensation is stronger than the changes in fair values.Compared with the profit and loss from fair value changes, there is no significant correlationbetween the profit and loss from fair value changes included in capital surplus and executivecompensation.Based on the conclusions above, we can see that the payment contract of executives in listedcompanies has not take full advantage of the changes in fair value information, there exist a"function lock", that’s to say listed companies mainly refer to the profit and loss of fair valuewhich Included in the profit statement, but less concerned about changes in information includedin the balance sheet at fair value, which may resulted from China’s regulatory thinking of Paymore attention to the income statement but despise the idea of balance sheet regulation. Thisconclusion also indicate indirectly that executives may manipulate the classification of financialassets for their own interest, the governance mechanisms of listed companies in China has yet tobe improved.