Government Intervention, Executive Compensation And Earnings Management Correlation

With the development of China’s banking industry, the number of listed commer-cial Banks increased (up to now a total of 16), Earnings management problems in commercial Banks has emerged. Earnings management is the enterprise management authorities to the use of subjective selectivity of accounting policies, as well as the imperfect of accounting standards, distort the data in the financial report, to maximize their own interests and enterprise value maximization of a surplus manipulation. This kind of behavior violates the principle of information disclosure neutrality, which is not conducive to the healthy development of the securities market, or conducive to the stable operation of commercial Banks. Throughout most of the existing research, however, due to the particularity of business and industry, commercial Banks have often been weed out outside the object of study. However, during the social and economic development, commercial Banks stay in a very critical position. Researching the earnings management behavior of commercial Banks plays an to important role not only in maintaining its own safety and liquidity, but also the whole country’s financial stability. Therefore, with the increase of number of listed commercial Banks in China, the research needs to be strengthened. Based on this understanding, this article is to focus on the correlation between government intervention, executive compensation and earnings management in the listed bank: mainly on the basis of literature review and analysis of the current situation of government intervention, executive pay levels and the degree of earnings management in listed Banks, and reveals the correlation between government intervention, executive compensation and earnings management in the listed bank. In this paper, the research mainly answers three questions:1, the particularity of the commercial Bank earnings management? 2, the relationship between government regulation and earnings management? 3, whether the banking executive pay induces earnings management is in some extent, in which role the administrative intervention plays?Based on the review of basic theory of earnings management of commercial Banks, the path of government intervention and regulation and the special performance of executive compensation mechanism in the banking industry, collects datas from 2004 to 2012 of the listed commercial Banks in China as the research sample for empirical researching. In empirical studies, this article uses multivariate regression model, and puts earnings management as explained variables, the government controls, executive compensation and administrative intervention as the explained variable, and investigated the relationship between them. Conclusions are as follows:The relationship between government regulation and earnings management is inverted u-shaped; the effectiveness of the executive compensation sparks the earnings management behavior; when the mechanism of executive compensation restrained, administrative intervention sparks to the emergence of earnings management in down path; in administrative intervention listed commercial Banks, executive compensation causes more critical earnings management behavior than non-executive banks.This research about the relationship between banking government intervention, executive compensation and earnings management, on the one hand, help the govern-ment reasonably grasp its own role in the banking sector; on the other hand, for the future of the executive compensation incentive mechanism provides a train of thought of reform.