Study On The Equity Incentive And Earnings Management Behavior

The China Securities Regulatory Commission(CSRC) promulgated "The Management Measures on the Equity Incentive of Listed Companies(trial implementation)" in December 31 of 2005, and then, CSRC promulgated "Matters Related to Equity Incentive Memorandum No. 1, 2, 3". With the improvement of equity incentive system, the equity incentive companies gradually being pro-gaze, associated with earnings management behavior has become the focus of regulators and academia common concern.Based on principal-agent theory and human capital theory, I analyze the three stages of the implementation of equity incentive, that is base year, performance evaluation year and stock options exercise / restricted stock unlocked year. I analyze the correlation between the real and accrual-based earnings management activities and construct paired sample T test and multiple regression models to examine whether managers of listed companies with equity incentive use the two earnings management activities as substitutes in managing earnings and the correlation, using a sample of A-share listed companies over 2010-2012. If so, then I analyze the factors affecting earnings management manager.The main conclusions of this research are: Firstly, the companies implementing equity incentive have positive accrual earnings management in each of the stages. This shows that in the base year, the management use accrual-based earnings management to achieve higher performance, in order to obtain the qualification to implement the equity incentive. In performance evaluation year, the management use the accrual-based earnings management to achieve the exercise of stock options or restricted stock to unlock performance conditions. The stock options exercise or restricted stock unlocked year is the next issue of equity incentive, and it also needs to improve performance in order to achieve the performance evaluation standards. Secondly, the companies in the stage of the above have more stock dividends and common reserves capitalizing. Stock dividends and common reserves capitalizing can quickly reduce the exercise price of equity incentives, and then improve the chances of the management exercised. Thirdly, the more stock dividends and common reserves capitalizing, the more the value of earnings per share are affected by accrual earnings management. When management are in the use of accrual earnings management to improve the company’s performance, they also use stock dividends and common reserves capitalizing by lowering the exercise price, thus achieving excess returns of equity incentive. Finally, audit quality can be used to inhibit administrator using accrual earnings management and stock dividends and common reserves capitalizing to adjust earnings per share, but the combination of chairman and CEO has the opposite effect, and the higher the concentration of ownership, the higher of accrual-based earnings management and stock dividends and common reserves capitalizing impact on earnings per share.