Accrued And Real Earnings Management Selection

With the agency problems in modern enterprise arising, the relationship between earnings management and executive compensation are also widespread concern. Principal-agent theory, contract theory show that, executive salary is becoming a significant motivation of earnings management of listed companies.This paper combines these two earnings management modes, after selecting 2007--2014 A-share non-financial listed companies from Shanghai and Shenzhen Stock Exchanges as sample, from the perspective of executive compensation. First, this paper examines whether salary contract is China’s listed companies’ significant motivation of earnings management. Secondly, from the different dimensions of the salary contract, this paper study the salary contract’s impact on the choice between accruals and real earnings management of China’s listed companies.Thirdly, this paper study the nature of ownership play what role in the relationship of executive compensation and two types of earnings management; fourth, this paper study the salary limit order play what role in the relationship of executive compensation and two types of earnings management.Through the research, the paper concludes that:(1) First, there is a significantly positive correlation between monetary compensation level and two types of earnings management, but larger real earnings management regression coefficients described the executives prefer real earnings management. Secondly, there is a significantly negative correlation between shares level of executive and real earnings management, but to the accrual earnings management, there is no significant correlation. (3) The impact of executive compensation for both earnings management in different nature of ownership of enterprises is different. State-owned properties of listed companies weakened the promotion of executive monetary compensation for real earnings management and accrued earnings management.(4) In robustness tests and further analysis we found that the interaction of salary limit order weakened the promotion of executive monetary compensation for real earnings management, and this inhibition in state-owned enterprises is far more dramatic than non-state-owned enterprises, while it has not affect accrued management significantly. After the promulgation of salary limit order, the executives holding of state-owned enterprises plays a stronger inhibitory effect on accrual earnings management than non-state-owned enterprises.Innovation is that after dividing the earnings management into accounting earnings management and real earnings management, this paper study how executives select the accrual and real earnings management from the aspect of executive monetary compensation and executive stock ownership. In addition, taking China’s special conditions into account, we study the effects of executive pay on two types of earnings management in different types of enterprises and how salary limit order affect the relationship between executive pay and two types of earnings management.This paper concludes constructive suggestions on the effect of executive compensation for both earnings management, such as the optimization of the structure of executive pay, improving the incentive mechanism, strengthen supervision, etc. so that the salary system play better results.