Executive Compensation Contract And Accounting Conservatism

After the outbreak of the financial crisis in2008, the two projects of the role of accounting conservatism in the enterprise and the effectiveness of executive compensation contract caused the attention of people.The demand of accounting conservatism mainly comes from the contract, including executive compensation contract that is one of the causes of accounting conservatism. With the development of capitalism economy, the modern enterprise system was gradually established, the separation of ownership and management rights produced the principal-agent relationship. Information asymmetry and self-interest produce the agent’s moral hazard and adverse selection. In order to reduce the moral hazard and principal self-interest behavior of the agent, enterprise accounting policies and compensation policies introduced accounting conservatism. But the application of accounting conservatism in the executive compensation contract is not at it’s best level, the salary design concept about asymmetrical reflection on "good news" and "bad news" of executive compensation contract arises at the historic moment. This design reflects the existence of accounting conservatism in management compensation contracts. At present listed companies in our country mainly established the evaluation system of executive compensation on the basis of the accounting performance.But in order to maximize their own interests, the management have the motives of earnings management, which will affect the accounting conservatism.First of all, this paper reviews the domestic and foreign research of accounting conservatism and executive compensation contract, then the related theory. Through the review and analysis of the above,we put forward hypothesis and to empirically study in this paper. This article selects2004-2011financial data of listed companies in our country. That assumptions1and2respectively used Basu (1997) surplus-stock compensation measuring method and Basu (1997) surplus continuous measurement method. The first model is constructed by the use of Leone, Wu and Zmi merman’s method.The second model is constructed by using Basu (1997) surplus sustained model. Based on the regression analysis on the data, we found that:(1) accounting conservatism exists in the executive compensation contract in the listed companies of our country, because when a company has "good news",the degree of the correlation of executive compensation and firm performance is less than when the company in "bad news".(2) in the listed companies of our country, the higher degree of the correlation between executive compensation and accounting performance, the lower lever accounting conservatism.