Do Management Earnings Forecast Affect The Executive Compensation?

In general, academic circles have paid much attention to executive compensation levels and how to pay the executive compensation. The key is not the level of remuneration but how to pay salaries. Based on the view of theory of optimal contract, executive compensation should be linked to performance of the company, ie the higher the sensitivity between pay and performance, the greater the incentive of executive compensation to corporate governance, otherwise it will increase the agency problem. Previous studies have investigated the effect of corporate governance on pay-performance sensitivity, but except for corporate governance, do information disclosure also affects the pay-performance sensitivity? In addition to financial performance, the board of director will take non-financial performance indicator, for example information disclosure, into consideration when develop the pay contract of executive?By using annual data from 2010 to 2014 of Shanghai and Shenzhen listed companies, this paper intend to explore the effects of voluntary management earnings forecasts on executive pay structure and the management earnings forecast is distinguished into two factors: whether management earnings forecasts is voluntary and management earnings quality. Firstly, this paper tested the effects of two factors on executive pay-performance sensitivity and tested the difference of results between state-owned enterprises and private enterprises. Secondly, this paper test the accuracy of earnings estimates direct impact on executive compensation, and further tested the difference of results between state-owned enterprises and private enterprises too. The results show that compared to mandatory disclosure, firms that issued voluntary earnings forecasts have higher executive pay-performance sensitivity, while this relationship does not exist in the state-owned enterprises, exist in the private enterprises however; the results also show that the higher earnings forecast quality, the higher the executive pay-performance sensitivity; distinguish the property rights, this relationship does not exist, but after excluding influence of the earnings management(robust tests), ie the true performance, the true performance can increase the pay-performance sensitivity in private enterprises and in the whole sample. The higher quality of the earnings forecast, the higher executive compensation; in different nature of property right, this relationship does not exist state-owned enterprises while private enterprises in line with this relationship. This article also have tested the effects of earnings management, executive compensation viscous on our prior empirical findings. The results of further tests are consistent with prior empirical findings, thus make conclusions of this paper more robust and reliable.