Research On The Influence Of Management Incentive On Earnings Management

Financial report is an important channel of information communication between listed companies and the majority of stakeholders, and it is also an important medium of information disclosure of listed companies, When other relevant information is not available or it costs too much to obtain, the financial report became the external stakeholders at this stage to make a series of significant financial investment decision of important reference basis, especially the accounting earning information plays a vital role in significant investment decisions. The establishment of the modern enterprise system and the separation of ownership and management make the asset owner entrust management enterprise operators more than before, But as a result of inconsistent benefit target, and asymmetric information the operator does not always realize the maximization of the interests of property owners to enterprise management, and thus may produce "adverse selection" and "moral hazard". In order to solve the agency problem and reduce agency cost, the owner and the operator sign accounting performance based compensation contracts, hoping to achieve the interests of both sides. It’s thought that, as one of the important mechanisms of corporate governance, management incentive can play its governance role, reduce agency cost, thus realize maximize shareholder wealth value; But there are also studies which suggest that management incentive does not play its due role in governance management incentive, instead it constitutes part of the costs of the entrusted agency, eroding shareholder wealth. However, it is a pity that the current domestic scholars study of earnings management still mainly concentrated on the accrued earnings management level, ignoring another important way of earnings management, real earnings management. The implementation of “Sarbanes” bill and China’s internal control system show that listed companies are faced with the increasingly severe external regulation environment, the powerful compression can handle accrued profit space for earnings management, so as to the enterprise turn their means into a more hidden and complex real earnings management. In addition, the different means of earnings management on the company’s future value also exist bigger difference.As for the influence of relative to the accrued earnings management, real earnings management has a greater degree of damage to the company’s future value so that the management in the surplus manipulation could be on the choice of control method of interests balance. Therefore, when studying the effect of management motivation of earnings management is necessary to research scope extended to the real earnings management level, so as to fully reveal the earnings management of listed companies.Based on the above research background, this article selects the Shanghai and ShenZhen main board a-share listed companies during 2010-2014 as research samples, respectively to modified Jones model and Roychowdhury model cross section calculation of accrued as well as real earnings management as A measure of the degree of earnings management of listed companies, studying the effect of management incentives for earnings management. First of all, both at home and abroad and the existing literature to make sure this article research Angle of view, and to draw lessons from the relevant classical theory in this paper. Secondly, in this paper, on the basis of related concept definition we can apply for the classic theory as the theoretical analysis tools so as to form a corresponding management incentive earnings management, real earnings management mechanism and the influence of the overall earnings management. Accrued earnings management mainly around the choice of accounting methods for earnings manipulation, such as accounting estimates that change and generally occur at the end of fiscal year, the economic consequences generally affects only cash flow in each year,and will not affect the distribution of the total amount of the cash flow, less damage to the company’s value. Real earnings management mainly through real economic activity to achieve earnings manipulation, complexity and concealment, while its economic consequences not only affect the cash flow in each year but also affect the distribution of the total amount of the cash flow, damaging the value of the company. Although the compensation contracts signed under the background of two rights separation will induce the surplus of management control motives, but cost-benefit tradeoffs and the different ways of earnings management will produce different extent of the damage, Those managers under the incentive of compensation contracts prone to choose accrued earnings management way, but not to choose real earnings management way. At the same time, the extent of real earnings management control is over the corresponding rising degree in earnings management control, thus affirmed the management incentive on the overall play an positive role in Corporation’s governance mechanism. And then, on the basis of theoretical analysis, putting forward empirical research hypothesis in this paper. Finally, this paper studies the empirical research part of the design and carry on the empirical research and analysis aiming at the above empirical research hypothesis.The research results of this paper show that:(1) with the promulgation of the "Sarbanes act" and vigorously promotion China’s internal control system specification, external stricter regulatory environment has changed the earnings management of listed companies in our country mode, which means the manipulation in China’s listed companies accounting surplus will chose accrued and real at the same time two types of earnings management, but in the use of different means of earnings management degree, there is a difference, that is the real utilization degree of earnings management way higher.(2) As for the different ways of earnings management, there is a difference, the influence of management incentive monetary compensation and equity incentives are positively correlated with accrued earnings management relations, and negatively related with real earnings management, will chose that management of listed companies in the selection of surplus control means tend to weigh up the cost efficiency and prone to choose simple control method, the degree of damage to the company’s future value lower accrued earnings management.(3) We find that the monetary compensation and equity incentives are negative correlation with the overall earnings management from the overall earnings management behavior of the test results, which shows that although the salary incentive will induce the short-term behavior of the management, They may apply for accrued earnings management ways to manipulate accounting surplus information to meet the requirements of compensation contracts and for their own profit maximization, but the degree of inhibition of real earnings management behavior were significantly higher than that of accrued the rising degree of earnings management behavior, thus it affirms the positive role of management incentive in Corporation’s governance mechanism. Finally, combining with the conclusion of this article, It put forward the corresponding policy from the perspective of the optimization of the structure of executive compensation contract,recommendations executive performance evaluation index system, strengthen internal supervision mechanism, and so on.