The Relevance Between Management Compension And Earnings Management

Management compensation incentive is to solve the conflict of interest in the company’s principal-agent relationship, so that management can manage company by the goal of maximizing firm’s value. However, China’s capital market is still immature, the institutional and regulatory measures are not perfect, which make the management has the condition to use earnings management to maximize their own interests, so as to damage the interests of the shareholders. Therefore, the management compensation incentive is an important mechanism of corporate governance mechanism, and is also one of the major causes of earnings management.Based on research samples of listed companies of China’s Shanghai and Shenzhen from 2009 to 2012, this paper will study the relationship between management compensation and earnings management. At the same time, in order to examine the relationship between management compensation and earnings management under the different property, listed companies can be divided into state-owned and non-state-owned listed companies. In addition, in order to reveal relationship between each component of management compensation and earnings management, management compensation will be divided into monetary compensation, stock option incentive and on-the-job consumption to study the correlation between the three parts and earnings management. The first part of this paper introduces research background and significance of the relationship between management compensation and earnings management, puts forward the research ideas and methods, and expounds the research content and framework. The second part of this paper is to put forward the perspective of empirical research and content, based on research the motivation of the domestic and overseas earnings management and the relationship between management compensation and earnings management. The third part of this paper introduces the related concepts of management compensation and earnings management, and introduces some theories about the relationship between management compensation and earnings management, including principal-agent theory, asymmetric information theory and contract theory. At the same time, this part also illustrates the mechanism which the management compensation affect earnings management. The fourth part of this paper will analyze the theory of relationship between management compensation and earnings management and put forward three basic assumptions. The hypothesis H1: there is a positive correlation between monetary compensation and earnings management, and compared with the state-owned listing corporation, this relationship of non-state-owned listing corporation is stronger; hypothesis H2: there is a positive correlation between equity incentives and earnings management, and compared with the state-owned listing corporation, the relationship of non-state-owned listing corporation is more significant; hypothesis H3: there is a positive correlation between on-the-job consumption and earnings management, and compared with the state-owned listing corporation, the relationship of non-state-owned listing corporation is more significant. The fifth part of this paper is an empirical test of the relationship between management compensation and earnings management, including descriptive statistics, correlation test and multiple regression method. Samples is come from listed companies of China’s Shanghai and Shenzhen from 2009 to 2012, and all samples can be divided into state-owned and non-state-owned listed companies. In addition, in order to guarantee the robustness of the test results, this paper will also represent the monetary compensation measure using other indicators to measure. The last part of the article puts forward some policy suggestions on the basis of conclusion, such as determining reasonable salary structure, reasonable salary level and evaluation system. In addition, this paper expounds the limitations existing in the process of research and the prospect for the future research direction.Through the empirical test, this paper put forward the following conclusions: monetary compensation can trigger the earnings management, and compared with the state-owned listing corporation, non state owned listing corporation can trigger more behavior of management earnings; the equity incentive can trigger the earnings management, and compared with the state-owned listing corporation, non state owned listing corporation can trigger more the earnings management behavior; on-the-job consumption can trigger the earnings management, and compared with the state-owned listed companies, non-state-owned listed companies can trigger more earnings management behavior.