The Study Of Executive Pay Gap Impact On Real Estate Listed Companies Earnings Management

Earnings management has been a hot topic from accounting academic, especially with the development and improvement of China’s capital market, when shareholders, creditors and other stakeholders make economic decisions; firstly they tend to focus on corporate accounting information. Accounting earnings, as a concentrated reflection of accounting information, become the most important focus of the stakeholders. However, because the relevant accounting laws and regulations is not sound and supervisory departments lack inadequate supervision, earnings management happens occasionally out of compensation contracts motivation、debt contracts motivation、capital market motivation、tax avoidance motivation. This results in a serious distortion of financial information situation.With the separation of ownership and managerial authority and the development of modern enterprise system, the company executives as the core of company personnel determine the allocation of resources and management decision-making of the whole company. To a certain extent, the management level of company executives determines the future development of the enterprise. In order to keep executives, the majority of listed companies give various forms of salary incentive. Executive high pay are exposed in recent years, however, the public have doubt on executive compensation. Executive pay gap has become the key points of concern of the social from all walks of life. Compensation contract motivation is one of the earnings management motivations of the company executives. the senior executives, as the company’s earnings management main body, possibly carry out earnings manipulation based on improving their pay, reducing the gap remuneration between senior executives. So this article combine normative analysis and empirical research method make a deeply investigation and research on executive pay gap affect on the earnings management.We first summarize executive pay gap and company performance, executive pay incentives and earnings management based on the analysis of related literature. Secondly we introduce the definition of senior executives, executive compensation, executive pay gap definition, earnings management definition, earnings management characteristics, earnings management motivation, earnings management methods and related concepts. Then we demonstrate trust-agent theory, information asymmetry theory, behavior theory, and the theory of tournament theory. Then we analyze the present condition of real estate company executive pay gap and earnings management according to the data analysis. Based on theoretical analysis, we select138companies-annual sample randomly from real estate listed company in China during the period of2004-2013. We use accrued profit separation method and the modified Jones model to measure discretionary profit earnings management, and we use the difference between the company’s top three executive averages pay and other executives averages pay to measure executive pay gap. We also study the relation between executive pay gap and earnings management. We find that executive pay gap did have a significant positive impact on earnings management. In order to improve their own pay and narrow the executive pay gap, executives have motivations to manipulate earnings. At last, according to the results of the empirical analysis, we put forward to perfect the real estate industry executive compensation system and regulate the earnings management from two aspects of the external environment and internal environment.