Research On Relationship Of Executive Compensation, Overseas Background Of Independent Directors And Earnings Management

The independent director system is established by the Western countries in the developed capitalist market economy,which is designed to improve the company's management effectiveness.On the one hand,the independent directors can conduct the regulatory and constraints on the company's managers,and reduce the issues such as information asymmetries and insider control.On the other hand,the independent directors are relatively more objective and impartial,they can express their views of the Board's decision on a fair perspective,which is beneficial to form constraints on the controlling shareholders' behavior and to maintain minority shareholders or other relevant stakeholders' interests. Therefore, t has great significance for the long-term development of the company to exist a certain proportion of independent directors in the Board.However,the independent directors as a “exotic” have duplicate on regulatory functions of the Board of Supervisors,so different views have been raised by academic communities and practitioners on whether they can get rid of the containment from all parties to achieve independence and sensibilities in the true sense in our local economic environment.Therefore,this paper explored the relationship between executive compensation and the level of earnings management.At the same time,it also explored the regulation effect of independent directors' overseas background on the relationship by adding it into the model.We expected to examine how independent directors' overseas background influents their supervision,to explore ways improving the selection system of independent directors,and to effectively improve their functions.By combing and summarizing the relevant research literatures,we raised hypotheses based on the principal-agent theory,human capital theory,and asymmetric information theory.This paper selected samples from mainboard A-share listed companies in Shanghai and Shenzhen from 2009 to 2015,used the modified JONES-model to calculate discretionary accruals to measure earnings management,selects the natural logarithm of the top-three executives' total compensation to measure executives' compensation level, collected the information of independent directors' overseas background as the manipulated variable,and controlled the listed companies' size,financial leverage,profitability,Board size,etc.Empirical research process is divided into three levels:The first level,inspecting the relationship between executive compensation levels and earnings management.The second level,examining the regulation of independent directors' overseas background on the relationship.The third level,comparing the regulation in state-owned and non-state-owned listed companies.This paper finally reached the following conclusions:Firstly,when other conditions are the same,the presence of independent directors having overseas background can negatively regulate the correlation between executive composition and the level of earnings management.Secondly,when other conditions are the same,the regulatory role of independent directors' overseas background is stronger in state-owned listed companies.This paper also proposed some corresponding recommendations:First,foster uninterested market environment,and strengthen the moral construction of staffs.Second,improve the professional ability of independent directors to keep them fundamentally fair and independent. Third,rationally adjust the structure of the Board to ensure that the voice of minority shareholders can be heard.Fourth, encourage the emergence and development of full-time independent directors.