The Impact Of Internal Pay Gap On Firm Performance And Earnings Management

The separation of ownership of Stock Company makes incentive pay system into a modern company,especially listed companies generally take incentives and supervision measures,which aimed at the performance and remuneration linked,on the one hand urge executives to work hard through make performance indicators,and on the other hand motivate executives by high salaries.However,due to internal control issues and administrative management practices of state-owned centralized system,resulting in pay gap in recent years,executives and employees of state-owned enterprises increased sharply,such a large pay gap has deeply touched people's nerves.Pay gap is too big problem,it has been widespread concern and research theory and practice community.Currently,theoretical study of the pay gap includes tournament theory and behavioral theory.Tournament theory think that the more pay gap,the more conducive to enhance corporate performance.Behavioral theory think that the larger pay gap between employees will generate a sense of injustice and contradiction,to reduce mutual cooperation,not conducive to improving company performance.Colorful perspective of the study,though find different conclusions,all efforts to strengthen the theoretical explanation on executive incentive effects.This paper mainly focus on the internal pay gap of state-owned enterprise that is internal equity,to investigate the effect of the expansion of the pay gap on the business performance and earnings management.First,collated and analyzed the domestic and foreign literature which is about pay gap between executive team and company performance,executive compensation incentives and earnings management,pay gap of executive and earnings management.And the concepts were defined,including executives,pay levels,the pay gap and so on.Describing the theoretical basis for the foundation,including principal-agent theory,equity theory,tournament theory and behavioral theory.Secondly,the current situation of state-owned enterprises pay gap is analyzed by EXCEL after a simple calculation and analysis,found the following features:First,China's inter-state executive pay gap between executives and employees in 2007-2014 were up overall trend,the number and proportion of large pay gap growing proportion of enterprises,while the small gap interval on the proportion decreases;second,on the whole absolutely the pay gap between employees and executives is less than the pay gap between executives of state-owned enterprises,but the increasing speed of proportion of the number of enterprises which large pay gap between executives and employees is far more than the pay gap between executives;third,the number of interval distribution companies of the overall distribution of the pay gap between executives of state-owned enterprises is similar to the positive state distribution,and the number of interval distribution companies of the overall distribution of the pay gap between employees exhibit an asymmetrical,positively skewed distribution curve;fourth,there are obvious differences in national enterprises inside the industry pay gap,the average pay gap of real estate industry is the largest,and the average pay gap of agriculture,forestry,animal husbandry-and fishery industry is the minimum;fifth,the existence of significant differences of state-owned enterprises inside the regional pay gap,the largest average pay gap is in eastern,central is smaller and western is smallest.Then,based on the analysis of theoretical and the current situation of pay gap,used 2007-2014 Shanghai and Shenzhen A-share listed state-owned company's data as sample,which is the empirical test of pay gap between executives and employees and corporate performance,pay gap between executives and earnings management behavior.Finding the following conclusions:First,the pay gap between internal executive and corporate performance showed a significant positive correlation,the large pay gap between executives can mobilize the enthusiasm,which will help improve corporate performance;second,the pay gap between executives and employees and corporate performance showed a significant positive correlation,the bigger pay gap between executives and employees,the better the company's performance;third,the pay gap between executives and earnings management showed a positive correlation,that means the more pay gap between executives,the more easily entice executives to manage earnings,I also found that with the rise in the core executive pay levels,there is a tendency to reduce earnings management.Finally,according to research findings,put forward some feasible countermeasures,such as a sound system of state-owned listed companies pay and governance structure,strengthen market management,give full play to the role of markets,standardized earnings management and so on.