Research On The Relation Between Equity Incentives And Real Earnings Management Based On Corporate Governance Level Differences

Equity incentive plan is a primary means to collaborate the interests of owners and managers, solve the principal-agent problems, reduce agency cost, so as to play a positive governance effect of equity incentive plan. But in the process of practice of equity incentive plan, managers are likely to do all kinds of earnings manipulation out of self-interest, in order to reach the relevant conditions of incentive plans. Existing studies have shown that some corporate governance elements are able to important impact on corporate earnings management behavior, such as the board size, board independence, ownership concentration, internal and external audit, institutional investors. Good comprehensive corporate governance level is likely to reduce earnings management behavior with the implementation of equity incentive executives, so as to ensure the implementation of equity incentive plan. In addition, the macro market environment and corporate governance is interconnected. High marketization process areas may provide a good external environment for enterprise development from many aspects, governance level of listed companies may be higher by all kinds of executive supervision. Good corporate governance in turn may improve the effect of macro marketing process. Therefore, based on China’s reform and opening up and the special system background from planned economy to market economy transition, we study the effect of marketization process on the relationship between the equity incentive and real earnings management under different corporate governance level, there is important practical significance and theoretical value to reveal how the external market environment with Chinese characteristics and internal corporate governance level work together on the equity incentive microscopic mechanism, promote our country’s equity incentive system to make a positive effect.In this paper, we use the principal-agent theory, human capital theory, contract theory and information asymmetry theory to analyze the motivation and the influence factors of equity incentive inducing real earnings management activities. Based on the implementation of equity incentive plans of non-financial listed companies during 2007-2012 as the research object, using the principal component analysis method to extract from the board of directors, ownership structure, institutional investors, external audit four sorts of comprehensive corporate governance index, empirically examine the influence of high, middle, low corporate governance level on the relationship between equity incentive and real earnings management, we found that the comprehensive corporate governance level has a significant impact on the relationship between equity incentive and real earnings management, high corporate governance level can significantly inhibit the real earnings management behavior induced by equity incentive, with the decrease on the level of corporate governance, its inhibition disappear. Then combining our country’s special system background, we research on how marketization process influence on the relationship between equity incentive and real earnings management, and the difference of marketization process’ s effect under different corporate governance level. The study found that marketization can inhibit the real earnings management behavior induced by equity incentives, marketization plays a protective role for the implementation of equity incentive plan, the higher corporate governance level is, the stronger role of protection marketization process plays.Finally, on the basis of empirical study’s conclusion, this paper has carried on the relatively sufficient robustness test, existing research conclusion remains valid. And, from the enterprise’s own corporate governance and the external environment’s angle, we put forward how to inhibit earnings management activities during implementation of equity incentive, so as to guarantee the equity incentive plan’s implement effect.