Research On The Effects Of CEO Compensations Upon Earnings Management Based On Industrial Attributes

The relation between executive compensation incentives and earnings managementhas been one of the hot topics in the field of corporate governance, but the existingconclusions are not consistent. This paper will combine normative research with empiricalresearch, and explore the effects of the top manager compensation on the earningsmanagement more comprehensively. We creatively introduce the industrial attributes as aexogenous variable and analysis its cross-level adjustment function on the relation.Firstly, this paper elaborates the research background and significance. By reviewingthe research results about executive compensation, industrial attributes and earningsmanagement, we analysis the deficiencies of previous studies, positioning the startingpoint of this paper, and elaborate the methods of research.Secondly, we defined the related concepts in this paper, including executive monetarycompensation, equity incentives, pay dispersion in top management team, earningsmanagement and industrial attributes. Further more, we elaborate the basis theories,including Principal-agent Theory, Human Capital Management Theory, TournamentTheory and Equity Theory, and analyze the mechanism of these theories.Thirdly, we model HLM to explore the cross-level regulating effect on therelationship between executive monetary compensation and earnings management by theindustrial attributes. The results of this study show that executive monetary compensationhas a negative effect on earnings management and that pay dispersion in top managementteam has a positive effect on earnings management. The industry competition and varianceof executive pay levels within the industry moderated the relationship between executivecompensation and earnings management.Further more, we elaborated the cross-level moderated function on the earningsmanagement of the equity incentives by the industrial attributes. The result showed, equityincentives had a significantly positive effect on earnings management, the existingcompetitive threats and industry growth moderated significantly the relationship betweenequity incentives and earnings management.Finally, we put forward the research conclusions by analyzing the empirical results, and the countermeasures and suggestions from the two aspects of the structure ofexecutive compensation and performance appraisal.On one hand, the conclusion of this paper enriched the theories. By using thecross-level model creatively, we discussed the regulating effect of the industrial attributeson the relation between CEO compensations and earnings management. On the other hand,this paper provided constructive references for the design of CEO compensation system.