Research On The Relationship Between Executive Compensation And Earnings Management Of Shanghai And Shenzhen A Shares Listed Company

With the separation of ownership and management in modern enterprises, contradictions appear when entrusting an agency under the contemporary enterprise system. In order to solve this problem, a compensation contract between the shareholders and the management is concluded. However, the executives tend to carry out earnings management in order to maximize their self-interests, since they have more internal information. At present, the researches on the relationship between executive compensation and earnings management are mostly based either on accrual earnings management or on real earnings management, and researches on the combination of the two are few and far between. Based on this, in order to improve and supplement the relationship between them from two aspects of theory and practice, this paper analyses the relationship between executive compensation and earnings managements –both accrual earnings management and real earnings management.This paper selects 1152 Shanghai and Shenzhen A shares listing Corporation in2009-2014 as samples, and uses the top third monetary compensation and the total number of shares as the substitute variables of executives' compensation. At the same time, Jones model and Roychowdhury model are also used to systematically describe the degree of accrual earnings management and real earnings management. All the data above are divided according to whole samples, different industrial competitiveness and combination situation of chairman and general manager, based on which we do a multiple linear regression analysis and the results are listed below. In whole samples analysis, negative correlation is found between monetary compensation of executives and earnings management. While Executive Stock Ownership are positively correlated with accrual earnings management, and negatively correlated with real earnings management. When dividing samples into three categories according to industrial competitiveness, results show that executive compensation and earnings management are not significantly related in the uncompetitive industry, but executive monetary compensation shows a negative correlation with accrual earnings management inthe industry which is competitive. And also in the perfectly competitive industry, executive monetary compensation and earnings management is negatively correlated with both accrual earnings management and real earnings management, while executive stock ownership is positively related with accrual earnings management. Based on the classification of whether the chairman and general manager are combined, samples are divided into two categories.And the results show that executive monetary compensation and earnings management are negatively correlated in both cases, while executive stock ownership is positively correlated with accrual earnings management and negatively correlated with real earnings management.According to the empirical research results and current domestic situation, this paper puts forward corresponding policies and suggestions for both the internal and external corporate governance.