Enterprise Life Cycle, Executive Compensation And Earnings Management

Securities markets require listed companies to provide objective and fair accounting information, earnings information is the core of many accounting information. However, the information asymmetry between shareholders and executives can not be eliminated, the separation of ownership and shareholders in the company is not directly involved in the management, resulting in surplus can not be obtained directly. Taken as an information advantage party, executives have the desire to achieve certain goals. As a result, earnings management behavior happens. Earnings management is through the choice of accounting policies. Executives can rely on information superiority to manage earnings, be misleading shareholders for the company’s true profitability.Executive compensation and earnings management are inseparable. Accordance with the principle of rational economic man, executives is in the pursuit of higher returns through earnings management, which is a maximizing self-interested behavior in order to achieve their own utility. Also in terms of motivation, earnings management is a way for executives to improve their own pay levels.At present, according to the law of development, enterprises in different stages of growth emerge as different operation rules. Stages of development for different enterprises need to establish different executive compensation strategy with suitable incentive executives in order to reduce earnings management behavior. This article is a combination of the corporate life cycle, management pay and earnings management.The content of this study includes seven parts, the first part is an introduction. The second part is the literature review. The third part is the theoretical basis, first expounded the theoretical definition of the executive compensation and executive compensation decision theory, and then analyzes the motivation of earnings management of listed companies in China, as well as analysis of China’s listed companies to manage earnings. The fourth part is the identification of the corporate life cycle stage, this chapter first analyzes the characteristics of the corporate life cycle, followed by financial indicators as a starting point to take the seven elements judge whether an enterprise in the life cycle, and then the introduction of the principal component analysis of the corporate life cycle divided. The fifth part is empirical analysis. This chapter takes regression analysis of the correlation between executive pay and earnings management in the full sample, growth, maturity and decline stage. Part VI of the perfect executive compensation strategies and recommendations for different life cycle stages. The seventh part of the conclusion is the study and limitations. Summarize the main conclusions of this paper:in the case of the full sample, the executives will increase their own remuneration surplus.In the growth stage, in order to maximize their own rewards, executive will manipulate short-term profits to increase earnings. At maturity, the level of executive pay to meet the expectations of most of the executives on their own remuneration, increase the surplus for its own sake is not strong motive. In a period of recession, businesses can not meet the level of remuneration for executives. Executives need to change the short-term performance.Certain contribution in the following two ways:The first is the contribution of the topics angle. Compared with the previous research, this study considering the corporate life cycle, the relationship between executive pay and earnings management three, rather than unilaterally study of executive compensation and corporate life cycle as in the past scholars on earnings management affected. The second is the contribution of the conclusions of the study. In this paper, through the different life cycle stages of the empirical analysis of corporate executive pay and earnings management, executive compensation strategy provides the corporate life cycle stage with earnings management behavior, effectively supporting the enterprise to realize strategic objectives.