Empirical Research On The Influence Of Different Equity Incentive Models For Earning Management

Equity incentive developed very rapidly in the past20years in abroad,thereare95%of the world’s top500companies adopt equity incentive plans.A realsignificance equity incentive begin after the equity division reform in2006,China,from then on our China entered the era of full circulation of stock. Inthe process of the implementation of equity incentive, the executive pay too muchattention to the share price of company,through the earnings management toinfluence the specifications of the equity incentive plan in a special period,and theninfluence the share price of company,finally sell the stocks to earn profit when thestock price is high.There are three kinds of equity incentive model:stockoption,restricted stock, Stock appreciation rights,the different equity incentivemodes can bring different impact on the degree of earning management.China is abig manufacturing country,enjoys the reputation of “word factory”,how thedifferent equity incentive modes bring different impact on the degree of earningmanagement,this issue is worthy of our consideration.This paper firstly describe the domestic and foreign relevant research,combine with the theory and the status of implementation of equity incentive oflisted companies in manufacturing industry in China, put forward hypothesis of theresearch, and test the hypotheses through empirical analysis.This paper selects201listed companies in manufacturing industry from2006to2012as the observedsample,then selects the listed companies of manufacturing industry in the sameperiod,possessing the same asset size that didn’t announce equity incentive plansas a control sample,this paper uses the Jones Model to measure the degree ofearning management,and analyse the changes in earning management before andafter the equity incentive plans announcement,then analyse the degree of earningmanagement that the different incentive models bring in.During the empirical test,we can conclude that:firstly,the listed companies ofmanufacturing industry in China use the downward earnings management to lower their stock price,then the striking price can be made in a lower level;while after theannouncement,they use the upward earnings management in order to get profitwith a high stock price.Secondly,in the field of manufacturing industry,the differentincentive models have different degree of earning management,comparing therestricted stock mode to the stock option mode,the executives manage their earningmanagement a little more.According to the implementation of equity incentive status of themanufacturing industry and the conclusion of the empirical test,the paper proposessome suggestions on the selection of equity incentive model,then brings upsuggestions such as establish perfect performance evaluation,strengthen theregulation of the securities markets,perfect the governance structure of thecorporate,establish the effective competition manager market,hope to provide somesuggestion in the selection of incentive model in manufacturing industry,andsuppress the earning management behavior occurred in the implementation ofequity incentive.