The Research On The Impact Of Equity Incentives To Managers’Earnings Management In Listed Company

The prevalence of equity incentives began in the yields of1970s to1980s in west, rapidly developed in90’s.What this system pursued is the highest degree between the executives and shareholders, which led the managers stand in line with shareholders to make decisions. As a result, the managers maximized their own interests, the stocks’ wealth for the overall value of the company had been valued at the same time. To some extent, this incentive system played a positive part in promoting corporate performance. That was why it had been valued in western countries.The earliest case of stock ownership incentive was in1993for Vanke. Then it was used in motivating the executives by some companies. However, after the incident of " Xianping Lang and Wcijun Gu", the measures were stopped by relevant departments, owing to the presence of imperfect market system of securities. In2006, securities regulatory commission published the law" Listed Companies’ Incentive Management Approach"(piloting) and the fulfillment of reform of split-share structure measures taken over in2005,which effectively cleared the way for equity incentive system under the laws and systems. After that, stock incentives were widely adopted. What’s more, since2008, the Notice on Regulating the implementation of the state-controlled listed companies issue equity incentive system and "Equity Incentive matters relating to the memorandum1,2,3" was successfully issued, which made the system become mature in rectifying and improving continuously. Finally, the equity incentives entered into a blow-out period in China.Nevertheless, after the incident of "Enron" in USA, an increasingly number of scholars started to focus on many dangers behind generating higher revenue for managers by the equity incentives. They had shifted their attention to the impact of equity incentives to earnings management. Also they were enthusiastic about discussing the question weather the equity incentives became managers’ tools for building huge salaries when they protected the interests of the owners or not. By empirical approaches, many scholars have drew conclusions that due to the information asymmetry, principal-agent problems and the imperfect of relevant laws and regulations, equity incentives will actually provide chances to the earnings manipulation.As the equity incentive were still in the early stages in China, there were not many researches on the relationship between equity incentives and earnings management. In addition, domestic scholars have not yet came to united consensus on that issue. Therefor this article selected A-share Listed Companies bulletin equity incentive plan in Shanghai and Shenzhen Stock Exchanges as samples on the basis of the Theoretical Research of scholars at home and abroad, choose the cross-sectional modified Jones model as the discretional accrual substitution variables, then build the experimental and control sample group, and paired t-test both. Meanwhile, author established a model of multiple regression analysis to explore the impact to the earnings management action by the incentive levels, exercising time-period and so on. At last, went to the conclusion that the management level of earnings management was in positive correlation with the incentive levels, company scale, ownership concentration, and in significant negative correlation with exercising time-period.Finally, on the basis of theoretical and empirical research results in the context of Chinese specific conditions, this article put forward some suggestions about how to improve the implementation of incentive policies in China, which played an import role in improving the quality of corporations’ information announcement, protecting the interests of investors and small or medium shareholders.