Executive Incentives,the Quality Of Internal Control And The Real Activity Earnings Management

With the development of modern enterprises,shareholders gradually entrust the right to business executives,and according to its contribution to the degree of corporate to determine executive incentive.However,due to the agency cost and the lack of information,the shareholders can not measure the contribution of the executives.The unreasonable incentive measures may cause the executives to manipulate the real activity earnings management,thus damaging the interests of company.Therefore,how to implement effective executive incentives has aroused great concern.At present,many scholars have studied the relationship between explicit incentive and accrual-based earnings management in managerial incentives,while the real activity earnings management can directly influence cash flow and are not affected by changes in accounting policies and accounting estimates.At any point,it is more stealthy and more destructive.Whether executives will choose this high-risk earnings management when they are motivated is worth studying.In this paper,the real activity earnings management is taken as the proxy variable of earnings management,and salary incentive is taken as the proxy variable from monetary compensation,stock incentive and working consumption respectively.From the perspective of explicit salary and hidden salary study the impact of executive incentive to th real activity earnings management.At the same time,scholars focus more on the influence of executive power in the middle,little attention to whether the internal control as a regulator variable also plays an important role in the compensation contract.With the promulgation of the internal control standard,the quality of internal control of listed companies has been improved,the earnings management of listed companies has been reduced,and have had a significant impact on the value creation and the protection of investors' interest.Based on this,whether it can promote the executive pay incentive to play a more effective role,at the same time put forward reasonable suggestions to improve the internal control system and the establishment of the compensation contract,providing the new perspective of theory and practice closely integrated.This paper is based on the principal-agent theory,the optimal contract theory and the theory of managerial power,taking the A-share listed companies in 2010-2014 as the sample,with abnormal production costs,abnormal expenses and abnormal operating cash flows as agents of the real activity earnings management.This paper analyzes the correlation between executive incentive and real activity earnings management,and then study the regulation effect of internal control on executive incentive and the real activity earnings management.The results show that executive cash compensation can restrain the real activity earnings management;executive stock incentive can restrain real activity earnings management;And reasonable working consumption has the substitution effect on the real activities earnings management,but excessive working consumption can induce the real activity earnings management.Moreover,when the internal control quality is high,the inhibition effect is more obvious,and the degree of induction is reduced.