Study On The Relationship Between The Executive Equity Incentive And Earnings Management

At the end of 2006, China’s relevant departments have issued the relevant laws and regulations of equity incentive, since then, equity incentive plays more and more important role in our country. With the continuous development of modern market economy, company governance machine system is constantly improving. One of the most prominent change is that the company introduces the higher professional talents to run the company, which realizes the separation of operation right and ownership. But the objective function of business owners and operators is not exactly the same, which leads to the direction of the operator effort may not be what the owners want, the two deviations may occur. This is the famous principal-agent problems, the owner is the principal of the enterprise, the operator is the agent. In order to reduce the agency cost and effective incentive company operators, equity incentive arises at the historic moment. But, at the beginning of the design, the researchers only put their attention to the positive function of equity incentive. With the deepening research, scholars have increasingly found the disadvantages of equity incentive, management of earnings management is one of them. Executives equity incentive can induce implement earnings management behavior in order to implement equity incentive regulation performance indicators. To a certain extent, it inspired the executive take advantage of their position to make profit manipulation, eventually damage the interests of shareholders.Based on combing the classical theory of executive equity incentive and earnings management, the text form the theory analysis part of this article. On the basis of theoretical analysis, the text puts forward the hypothesis, namely the HI:in the year of equity incentive implementation, the executive equity incentive and accrued earnings management was significantly positive correlation;H2:in the year of equity incentive implementation, executive equity incentive and there was no significant correlation between real earnings management;H3:a year after the equity incentive implementation, executive equity incentive and accrued earnings management was significantly positive correlation;H4:a year after the equity incentive implementation, executive equity incentive and real earnings management is significantly negative correlation. In the aspect of data selection, the text choose the data of China’s securities market as the research sample, through the CSMAR and Wind database data acquisition and processing. First of all, calculate the DA, E_CFO, E_DISP, E_PROD, E_PROXY of whole sample; Secondly, on the basis of theory and reference literature, select the corresponding control variable. According to the hypothesis empirical model was constructed. In view of the model, use T test, multiple linear regression method to test the hypothesis.On the basis of the empirical test, this paper draw the following conclusions:(1) due to the accounting system, laws and regulations and corporate governance in our country is still not perfected, executives have the opportunity to modify the surplus information taking the advantage of one’s position and accrued earnings management is easy to operation. So in the year of the implementation of equity incentive, executive equity incentive and accrued earnings management was significantly positive correlation;(2) due to the implementation of equity incentive of executives using real economic activity in the manipulation of the surplus is difficult, so in the year of the equity incentive the implementation, there was no significant correlation between the executive equity incentive and real earnings management;(3) because one year after the implementation of equity incentive, shareholders have high expectations for the performance of the executives, and most of the content of the equity incentive is directly related to performance, so executives have the motivation of the implementation of positive earnings management;(4) real earnings management has the characteristics of the irreversible, and the damage to the enterprise is very large. That is to say, it is hard for executives to get the benefits of "reverse" by this way, so one year after the implementation of equity incentive, executive equity incentive and real earnings management is significantly negative correlation.