The Research On The Effection Between Executive Compensation, Investor Sentiment And Earnings Management

In recent years,topics about earnings management are always hot issues in academic filed. Especially, with the development and of capital market. In modern enterprises because of the deperated of right and obligation, here comes a principal-agent relation between shareholders and management layer, which makes a bigger conflict of interest. Top manager tend to sacrifice shareholders'interest to maximize their own interest. To aquire higher salary and great return, they take advantage of mastering accounting information to do earnings management thus is the motivation of earnings management.Existing documents are always written to focus on the study of the correlation analysis of executive compensation and earnings management. While this paper also consider another influence factor,that is investor sentiment. Base on catering incentive, this paper analyzes the complex relationship of executive compensation, investor sentiment and earnings management strategies. Existing research results at home and abroad of relevent study analysis the meanings of earnings management, characteristics, motivation and methods. Expounds relationship of executive compensation, investor sentiment and earnings management. On this basis,put forward the related hypotheses listing corperation executive compensation,investor sentiment and management. The empirical test shows that executive compensation is significantly and negatively related to the the level of real earnings management and that executive compensation is significantly and positively related to the the level of accrual earnings management. While this paper considered another influence factor of earnings management at the same time, that is investor sentiment. Based on The executive compensation, especially the degree of stock incentive, is significantly and positively related to the level of real earnings management, and is significantly and negatively related to the level of accrual earnings management, conditional on the degree of investor sentiment. The state-own listed companies are more willing to adopt real earnings management strategies to cater to investor sentiment. If there is a high degree of investor sentiment, the company will adopt positive real earnings management strategies, and if there is a low degree of investor sentiment, the company will adopt negative real earnings management strategies. The empirical results indicate that executives will choose the less risky and costly earnings management strategies that cater to investor sentiment and seek to maximize their own interest in the company.