Research On The Relationship Between Equity Incentive And Financial Restatement

The stakeholders pay more attention to information disclosure of public companies, as the stock market, as the “barometer” of the real economy, develops rapidly together with its quite strong volatility. However, people begin to question the quality and stability of information disclosure resulting from the frequent occurrences of financial restatements in recent years so that scholars set out to explore the influential factors of financial restatements. Equity incentive, as the significant way to solve principal-agent problem, has, to a large extent, promoted the economic prosperity abroad. However, the equity incentive is criticized as “the initiator of financial and accounting fraud” after the Enron event, and overseas scholars have already carried out relevant studies. In China, there have been fewer studies on the equity incentive and financial restatements, for the equity incentive started relatively late in our country, and did not have legal support until 2006. In view of this, this thesis attempts to study the relationship between them in the hope that corresponding countermeasures can be put forward for the frequent financial restatements.Taking the 111 cases of financial restatements(accounting errors) in Shanghai and Shenzhen A and B share markets from 2010 to 2015 as samples, selecting paired samples on the basis of industries, financial year and gross assets accordingly, financial restatements as dependent variables, whether utilizing stock incentive or not and its level as the independent variables and combining with the control variables, this thesis studies the relationship between stock incentive and financial restatement son the basis of financial restatements by use of descriptive statistics, correlation analysis and binary logistic regression analysis.The study finds that companies going through financial restatements have relatively high possibility of bringing the stock incentive into force compared with those not, and the stock incentive level and financial restatements demonstrate a U-shaped relationship, that is, when the stock incentive level is relatively low, the occurrence possibility of financial restatements will be reduced as the stock incentive level increases; when the stock incentive level is relatively high, the occurrence possibility of financial restatements will be enhanced as the stock incentive level increases; the convergence interest effect of stock incentive(entrenchment effect)can be more easily brought into play in such companies with the system of separated leadership(duality).This thesis will develop the research contents of stock incentive and financial restatements, enrich the studies on the occurrence reasons of financial restatements from the perspective of management, examine the U-shaped relationship between stock incentive and financial restatements through empirical tests, improve the governance pattern of companies’ internal management, and put forth specific advice for reducing the occurrence of financial restatements by better formulating stock incentive policies; stock incentive and leadership structure should be combined, and the proportion of stock incentive and the benefit of management and both sides of shareholders should be unified, and entrenchment effect should be tried to avoid so as to better arouse the enthusiasm of the management, to avoid earnings manipulation and to reduce the occurrence possibility of financial restatements...