The Impact Of Ownership Pay Gap On Earnings Management

Since Berle and Means (1932) proposed the separation of ownership and management, the Salaries of the High-level Administrators, in particular the remuneration of the senior management staffs are increasingly become the focus of public attention, British company first introduced in the formulation of executive compensation programs to accounting earnings as an important measure in the end of19th century, the capitalist countries in Europe and America all believed that this program is worthy of emulation. Since the30years of reform and opening-up, China’s economic construction has made remarkable achievements, become the world’s second largest economy which second only to the United States,the executive of state-owned enterprise’s pay have always been a focus of government departments. With the continued expansion of executives and general staff salaries, as well as executive’s astronomical salaries, the government increased controls on executive pay. In September16,2009Human Resources and Social Security, Audit and other six ministries jointly issued "Guidance on Further Regulating the central business executives compensation management," this document make a standard to the remuneration of SOE executives from the salary structure and salary levels, by summering the practical experiences of reform in recent years,referencing the international invention of modern enterprise reward management, identifies five basic principles to regulate the responsible person, wish to achieve a reasonable level of state executive remuneration structure by this method.The distribution of listed companies executive compensation is an important part of the income distribution system, with the frequent occurrence of events such as Guotai Junan million annual salary, Ping an million annual salary, the public increasingly concerned about the problem of executive salary, the fairness and reasonableness of executives salary design has also become the hottest point of economics research and development. Owing to the difference of enterprise size, industry and policy-making, some scholars believe that different companies pay differentials is therefore reasonableness. Adams (1965) proposed equal theory, the theory that people want to evaluation of their ability accurately. But in the case of lack of simple and straightforward evaluation criteria, people will compare with similar people to evaluate their abilities. Therefore, the subject of this study-executives assets how fairly they have been treated according to comparison with others, and then adjust their behavior according to this. This comparison including two parts, internal and external. Internal equity refers to executives will compare their pay and reward with their colleagues in the same company with similar position. External equity refers to the executives will compare their pay and reward with their profession from different companies. By this way, they will obtain the perception of fairness. Whether internal or external fair, it’ll affect the enthusiasm of senior executives and their motivation of work, thus affecting the final executive action. Because executives have a certain status in society, and the Chinese always attach very great importance to the "mianzi", so pay fair is particularly important to senior executives. It will affect the motivation of executives, if executives believe they have been treated unfairly, they are likely to do something like earnings management to maximize.their benefits, but this will detrimental to the business interests. Whether the continued expansion of our current executive pay will lead to earnings management, this article will study on this issue.The primary research method will be both qualitative and quantitative, based on qualitative research, then it choose the data of the A-share listed company both in Shanghai and Shenzhen Security Exchange Market from2006to2012as the sample, build a model using three variables, these variables including earnings management and both internal and external pay gap. At last we use statically software STATA to do the empirical research. This paper can be divided into seven chapters, and the main contents are as follows:The first chapter is to advance the question, briefly introduces the background and significance of this research, as well as the value of this study, in order to grasp the core of this paper and framework of this study.The second chapter is a summation on relevant research. This part reviews the literature on the relationship of pay gap and earnings management and makes a brief review of this literature, using all of this as the starting blocks of this research.The third chapter is the theoretical analysis. This part is the theoretical base of this study. In this chapter, firstly definition the basic concepts involved in the content of this paper, then describes the basic theory of this subject, lastly systematic analysis the theory of executive pay gap.The forth chapter is the propose of the assumptions. Firstly Status analysis of the internal gaps and earnings management on executive compensation, Secondly evaluation and analysis both the status of the internal gaps and the character of earnings management, finally propose the research hypotheses by relevant theoretical analyses.The fifth chapter is the empirical analysis about how the internal differences of executive affect earnings management. The empirical analysis took2006-2012Shenzhen and Shanghai Stock Exchange A-share data as the samples, built a multivariate regression model about the relationship of internal executive pay and earnings management to do this research.The sixth chapter is the empirical analysis about how the external differences of executive affect earnings management. The empirical analysis took2006-2012Shenzhen and Shanghai Stock Exchange A-share data as the samples, built a multivariate regression model about the relationship of external executive pay and earnings management to do this research.The seventh chapter is conclusions and policy recommendations, First, summarize the conclusions of this paper; Second, correspond policy suggestions by the conclusion and the theory analysis; last but not least, point out both the deficiency and the future study of this paper.The main contribution of this paper is the following:First, It expands the research field of the impact on earnings management to executive pay gap. Domestic research on earnings management despite a late start, but made quite fruitful research results. But most of them focused on compensation contract and capital markets motivation, few focused on executive pay gap. In this study, we do it.Second, improving the empirical model of salary decision model. According to our country’s reality condition, considering the uneven economic development, the Chinese are divided into eastern, central and western regions, We set a dummy variables named area, area equals zero stands for the central region, area equals one stands for the western region.Third, Previous studies was primarily on internal gap. this study is both from internal and external. This study will improve the domestic theories, help prevent and mitigate earnings management, improve securities market regulation system and improve the incentive pay system for listed companies.