Financing Constraints, Executive Compensation And Earnings Management

Along with the reform of company system,debt financing has become an essential part of the development of enterprises,however because of the differences of the size of the companies,the time of the establishment and the nature of the enterprises,their facing results in enterprise financing conditions are very different in the capital market.Reducing the cost of debt financing and achieving more debt financing is one of the key factors for the success of listed companies.And earnings management which is seen as the opportunistic behavior for executives of listed companies using the occupation judgment to manipulate accounting information and to whitewash financial statements in order to achieve a variety of motives,has become the focus concern of internal and external information users.It is of great significance to study the relationship between financing constraints and earnings management,and to study whether there is earnings management behavior under the financing motive,which can alleviate the financing constraints and reduce the level of earnings management.Through the combined method of theoretical analysis and empirical analysis,the article researches the effect path of earnings management under financing motivation,and also further explores the influence mechanism of executive compensation incentive on the relationship between financing constraints and earnings management,which shows significant differences between the different compensation incentives for executives on the behavior of earnings management under the financing motivation.Finally it puts forward the policy recommendations to alleviate the financing constraints,and to reduce the level of earnings management.According to the theory of agency cost of debt,as the interests of shareholders and creditors are very different,the creditors cannot obtain the all of internal information and in order to protect their own interests,they will be used to transfer the potential risks by improving the conditions of loan rate and shortening the duration of the debt.Meanwhile,in order to reduce the risk of violation of the provisions of the debt and meet the requirements of the loan conditions of the credit bank,the enterprises will entice executives to conduct earnings management behavior.Therefore,it is necessary to find a way to alleviate the financing constraints,and to reduce the level of earnings management of listed companies.This article selects the 15773 sample data as the research sample,which is from all the A shares listed companies from 2006 to 2015 for the last10 years,and establishes the regression model combining with the existing literature.On the one hand,it examines whether there is earnings management behavior under financing motivation for listed companies.On the other hand,it explores the influence path of executive compensation incentives on earnings management under the financing motivation.Finally,the results of the study show that:(1)In the case of other conditions remaining unchanged,there is a significant positive correlation between earnings management and financing constraints,that is the higher the financing constraints,the higher the lever of earnings management is;(2)In the article,executive compensation incentive is divided into two parts such as monetary compensation and executive stock ownership,and the results show that executive monetary compensation can inhibit the positive correlation significantly between financing constraints and earnings management,while executive stock ownership will promote the positive correlation between the two,but the result is not significant.The results show that the different methods for executive compensation incentive of listed companies have significant differences in the level of earnings management under the motivation of financing.According to the above results,this paper puts forward the relevant policy suggestions.First of all,pay attention to the company's financing system,and optimize the external financing environment.An important factor why the listed companies face the financing constraints is the unreasonable design of the financing system.When the internal own funds are insufficient to meet the needs of the managements and investments,and the external financing costs are high,it will result in that the enterprises cannot raise the required funds timely and will aggravate financing constraints.But the reasonable financing system can help enterprises to raise the funds timely,with the lower financing costs.Secondly,strengthen the corporate governance and improve the executive compensation incentive mechanism: first,design a reasonable set of executive monetary compensation.High monetary compensation incentive for executives can reduce the debt agency costs effectively and ease financing constraints,and then reduce the level of earning management under the motivation of financing;second,evaluate scientifically and select the executive stock option incentive.Through the analysis of the empirical results,it is found that,in response to the earnings management of financial incentives,executive monetary compensation restrains earnings management behavior more availably than executive stock ownership incentive.Thirdly,improve the relevant legal system and punish the false information disclosure severely.The government should improve the corresponding policies and regulations gradually,and the Commission regulatory agencies should increase the punishment of the listed companies who disclose false information,to ensure the transparency of information and reduce the asymmetry of information.The above policy suggestions are put forward to the specific research conclusions,which have great significance to the policy of alleviating the pressure of financing constraints and reducing the degree of earnings management.