Research On The Correlation Between Executive Compensation And Earnings Management

Earnings management and executive compensation has always been a classic research topic in the field of domestic and international corporate finance, since the separation of ownership development, scholars began to study the relationship between executive compensation and accounting performance and executive pay structure, which led to the thinking of scholars, executives of earnings management behavior, start the earnings management meaning, motivation, measurement methods, and regulatory issues. According to the study of foreign scholars, earnings management motivation comes from the company contracts, capital markets and political costs, but most of the domestic research surplus management motivation from the capital market, not many studies on the relationship between earnings management and executive compensation contract. We can trace the mechanism of action between the two principal-agent theories. Separation of ownership and management of modern corporate system, the shareholders of assets entrusted to the manager of the company on behalf of the business, while the remaining property claims manager of the company, resulting in the manager’s pursuit of goals and goes against the interests of the shareholders, moral hazard、agency problems resulting. Shareholders through the signing of the compensation contracts commissioned by the managers run the company, but due to asymmetric information, shareholders is difficult to directly understand the manager’s effort and then determine their remuneration, the shareholders can only be simply related to accounting performance indicators as to enter into the basis of salary contract.As a rational economic man, in order to maximize the pursuit of private interests, company executives will have accounting performance indicators to manage earnings. Domestic and international research has verified the existence of these phenomena, as the board of directors of the company executive compensation contract status in the hiring of senior management, the design of executive compensation contracts should be should consider this earnings management behavior to enhance the effectiveness of the compensation contract. For thinking of these phenomena, in this paper, from the monetary remuneration of the executive incentive perspective, study the correlation between executive pay and earnings management, and on the basis, investigating the nature of ultimate control(state and non state-owned companies) induced earnings management on executive compensation.as well as the problems in order to establish fair and reasonable remuneration and incentive mechanisms, nurturing manager market, strengthen corporate governance, to ensure the company’s executive compensation system more rational and scientific.Used in this paper is a combination of normative and empirical research methods, and mainly includes five parts:The first part, introduction. Introduces the research background and significance of China’s listed companies earnings management and executive pay, an overview of the research framework and research methods. and pointed out that the innovation point of the article; The second part, the domestic and international literature review, review the research of the motivation of earnings management behavior at home and abroad, Include debt covenants, capital markets and the political costs; The third part, defines the meaning of this executive compensation and earnings management, executive compensation includes only the basic salary and annual bonus accruals, earnings management can manipulate accounting profits, And designing executive compensation and earnings management variables, the use of improved cross-section Jones model to measure earnings management,finally, the theoretical basis of the relationship between the two-The principal-agent theory and asymmetric information theory; The fourth part, the empirical analysis. This section first article research hypothesis,2009-2010Shanghai and Shenzhen A-share listed companies of the motherboard for the study sample, the model design and model descriptive statistics and multivariate regression analysis; The fifth part, the research conclusions、recommendations and outlook. Combined with the analysis of empirical results, summary of research findings, and make relevant policy recommendations, and pointed out the inadequacies of the article propose directions for future researchThe study found that China’s listed companies executive pay and earnings management significantly positively related to the steerable accruals significant impact the level of executive pay in listed companies, for executives to improve their own salary to manage earnings motivation; But the board of directors of listed companies in entering into the compensation contract, more than the profits of the accounting statements in the earnings management based on, and not to judge and identify the earnings management of executives; For state-owned enterprises and non state-owned enterprises in different economic nature, although executive pay are one of the basic motivation of earnings management, but compared with the non-state-owned listed companies, because of witch hunt, the state-owned listed company lower the extent of executive compensation inducing earnings management; Finally, against the results of the study, put forward the recommendations that the enhancement of long-term equity incentive and the establishment of sound and Remuneration Committee policy, and to determine the relative executive pay system.