Pay-performance Sensitivity And Value Relevance Of The Accounting Performance Measures

Executive compensation, corporate performance and value relevance of performancemeasures have been concerned about the domestic and foreign academic circles, foreignstudies have begun to link the relationship between the three, but the domestic research islagging behind,only study the relationship of executive compensation and corporateperformance, or simply to discuss the value relevance of accounting performance measures,have not linked them and comprehensive analysis the impact mechanism of them. From theintegration perspective of contract theory and information theory to explore the relationshipbetween pay-sensitivity and value relevance of the accounting performance measures, andstudy their relationship.The study select earnings and cash flows two performance measures, a sample of listedcompanies’ financial performance, corporate governance and other data in China2001-2011.First, assess the value relevance of the performance measures,obtain the value relevance ofearnings is higher than the value relevance of cash flows in China’s listed companies. Thenempirical analysis the correlation between pay performance sensitivity and value relevance ofaccounting performance measures, to prove the value relevance of earnings(or cash flows) andthe pay-sensitivity of earnings(or cash flows) have a significant positive correlation in China’slisted companies, and demonstrated changes on the time period:2003-2006, the valuerelevance of earnings and the pay-sensitivity of earnings are significantly positive relation;2007-2011, the value relevance of cash flows and the pay-sensitivity of cash flows aresignificantly positive relation.To better understand the correlation between pay-performance sensitivity and valuerelevance of accounting performance measures, as well as affected by what factors,considering the characteristics of the Chinese market, and from the cash flow manipulationand the major shareholder control were discussed show: cash flow manipulation have animportant impact on executive compensation contract, improve the relationship between valuerelevance and pay-sensitivity of earnings; the major shareholder control and earningsinteraction improve the relationship between value relevance and pay-sensitivity of accountingperformance measures, specifically, the large state-owned shareholders have an important impact on the relationship between value relevance and pay-sensitivity of earnings; thenon-state shareholders control have an important impact on the relationship between valuerelevance and pay-sensitivity of cash flows.