The Research Of The Relationship Between Equity Incentive And Real Earnings Management

Equity incentive mechanism is an important part of China’s state-owned enterprise reform, as an important role in enterprise equity division reform. With the promotion and application of equity incentive mechanism, its laws and regulations have gradually improved. But as a result of the existence of principal-agent mechanism, the problem of asymmetric information generally exists in the company,which led to the tendency of operators to use insider information on the company to realize earnings management. The earnings management phenomenon widely exsits in the GEM companies in our country. Therefore, through the perspective of equity incentive to study earnings management behavior, it can achieve the purpose of reducing or even to avoid the negative impact of earnings management by optimizing the enterprise’s equity incentive plan. This is very important to ensure the normal operation and to achieve the healthy development for the enterprise.Many scholars have studied the relationship between equity incentive and the traditional accrued earnings management, the results of the study also found that many elements of equity incentive plan will have a significant impact on earnings management. In the prior research, the study of real earnings management and equity incentives is relatively small, especially in real earnings management is the lack of entrepreneurial sector, and earnings management scholars on GEM about accrued earnings management usually use sectional data as object on research. In this paper,we are building on existing research methods of earnings management and equity incentive accruals to study the correlation between equity incentive and real earnings management, and using data panel on GEM. We choose company which have published equity incentive plan by the end of 2012 on GEM, the study data includes728 samples in the third quarter of 2012 to the third quarter of 2015,a total of 13 quarters. This paper analyzes the relationship between equity incentive and the real earnings management from three aspects. First, we investigate that whether the earnings management has significant influence on equity incentives. According to corporate equity incentive plan, on one hand, we can compare the performance between its published and the previous year, on the other hand, we can compare theperformance between its published and the realized year, to investigate whether the equity incentive can cause earnings management tendencies. Secondly, we study on the impact strength of the earnings management that the equity incentive caused. We point out that the higher the degree of corporate equity incentive, the operator tends to the higher earnings management. Finally, we study the factors that affect earnings management by equity incentive, by studying corporate governance structure,profitability, exercise time and the motivation model.Through empirical research, we have come to the following conclusions: First,the management of the listing corporation all have earnings management tendencies in the announced year and the exercise year. That is to say, company’s equity incentive plan allows executives to generate earnings management tendencies; Second,the greater the degree of corporate equity incentive, the more obvious tendency of earnings management; From the real earnings management, the "incentive" company is higher than the "welfare" company.