Research Of Influence On Earning Quality Of Listing Companies With Equity Incentive

Equity incentive combines the interests of owners and operators. It makes operators work hard to improve operational efficiency and reduce agency costs, thus increasing the value of the enterprise. The operators themselves are also reaping benefit due to the rise of share prices. But the economic consequences of equity incentive are not always consistent with the plan. On one hand, it indeed inspires operators, on the other hand it induces them to manipulate the earnings, thus resulting in earning quality’s reduction. And increasing number of accounting fraud in recent years made the study of earnings management turn to earnings quality from earnings quantity. Then, whether equity incentive can effectively improve the earning quality, and by what way? Related research will have great practical significance in help listed companies to design scientific and reasonable equity incentive plan of their own. That is to exam whether equity incentive can motivate managements to improve the operational efficiency and reduce agency cost to achieve the purpose of improving the earnings quality.This paper engages in a serious study of the influence which the equity incentive has on the earning quality, as well as the mechanism of the influence. We take a sample of279listed companies from stock markets of Shanghai and Shenzhen which announced equity incentive plan from2006to2011and analyze the qualified companies’equity incentives and earnings quality data. At the same time, we test whether operating efficiency and agency costs exist intermediary effect during the process that the equity incentive is affecting earning quality.This paper comes to three conclusions:(1) equity incentive has a forward influence on the earning quality;(2) equity incentive can improve business efficiency and there exists intermediary effect in business efficiency between equity incentive and earning quality;(3) although equity incentives can effectively reduce agency costs, earning quality is not improved, which means intermediary effect in agency costs is not obvious. Finally, suggestions are made for enterprise to design reasonable plans of equity incentive. The enterprises should establish a favorable market environment and scientific performance evaluation system, improving the compensation contract and supervision as well as assessment mechanisms. Besides, enterprises should concern more about how to give play to operators’ entrepreneurial talents and cultivate their operational ability, regulating the perquisite consumption of operators, thus will help improving the earnings quality.