An Empirical Study Of The Management Equity Incentive And Earnings Management

Since the beginning of2006, state departments, such as China SecuritiesRegulatory Commission, National Resources Commission and The Ministry ofFinance, have been put forward a series of legal norms, which are related to equityincentive plans of the listed companies. Since then, more and more companies beganto implement equity incentive plan. According to some Western and domestic scholars,equity incentives can enhance the consistency between the management’ interests andthe shareholder’ interests and then improving the corporate governance structure andthe company’s performance and so on. On the other hand, it may lead to manyproblems such as earnings management, transporting benefits, and so on. In China,the equity incentive is still in its infancy, there has a huge room for growth. Therefore,exploring the inherent laws between earnings management and equity incentives has agreat significance to the development of incentive stock options.Firstly, the paper reviews Western and domestic literatures about equityincentives and earnings management, sorting different scholars’ view. Secondly,according to principal-agent theory, human capital theory, motivation theory, theefficient market theory and asymmetric information theory, proposed theoreticalassumptions and do empirical research. Before the empirical research, I test thecorrelation between the independent variables, then using spss software for linearregression. After the empirical research, I test the robustness of the empirical results.Finally, proposing suggestions based on the empirical results, suggestions includingthe following aspects: equity incentive mode selection、 performance appraisalsystem, and so on.In this paper, I select companies which declare the implementation of equityincentive programs during2009-2011as research samples, select the proportion ofequity incentive (the number of incentive stock options/total equity) as thesubstitution variable, and select the company size、ownership concentration、capitalstructure、 ROE and administrative expenses as control variables, research therelationship between the degree of equity incentive and the degree of earningsmanagement under full sample. Then research the relationship between the degree ofequity incentive and the degree of earnings management under the stock option incentives mode and the restricted stock incentive mode, and examine whether there isa difference between the relationship under two modes. This is the innovation of thispaper.After the research, I draw the following conclusions: The degree of earningsmanagement and the degree of incentive levels are significantly correlated. And therelationship between the earnings management and incentive levels is stronger thanthe stock option incentive mode, that is, under the restricted stock incentive mode,managers are easier to manage earnings.