A Study On Executive Compensation Incentive And Earnings Persistence Of Listed Companies In China

To researchers worldwide,the salary incentive mechanism of listed companies’ senior executives has become the hot spot for years.To study the incentive mechanism a variety of researches from different views had been done and most of those researches were aimed at the link between the mechanism and the profit performance of the companies. Researchers were widely different when they chose the indicators that used to judge profit performance.Some researchers preferred net profit, others may choose earning of per share, ROE,ROA or Tobin Q.There are few researchers studied on executive compensation incentive and earnings persistence.Persistentearnings is regarded as a high quality earnings.Earnings persistence,as a vital indicator of earnings’quality, has an important reference value for investors.Therefore, the study of the effect that the salary incentive mechanism of listed companies’ senior executives has on earnings persistence has profound significance.In order to investigate whether the current salary incentive mechanism of listed companies in our country is reasonable and efficient,we studied the effect that the salary incentive mechanism of listed companies has made on earnings persistence. We studied on monetary compensation incentive and stock ownership incentive. The indications of accounting earnings we took were the net profit and net profit after deducting non-recurring gains and losses. We used the linear first-order autoregressive model to research earnings persistence which is also the main method used in other scholars.Through a bunch of empirical studies, we found that in China the salary incentive mechanism of listed companies can promote earnings persistence.To be more concrete,bothmonetary compensation incentive and stock ownership incentive can increase the company’s surplus continuity, but the effect of monetary compensation incentive is not as well as stock ownership incentive. Besides,the effect that the salary incentive mechanism of listed companies has made on earnings persistence will be differentinlosingfirms. Therefore, investors should give a higher valuation of those companies with better salary incentive mechanism(especially with good equity incentive mechanism).Listed companies should also improve the salary incentive mechanism and make it work out better in improving the company’s earnings persistence so as to improve the value of the company.