Earnings Management Behavior Before The Announcement Of Equity Incentives

Modern corporate system accelerates the developmentof economic as well as bringsthe problem made by principal-agent.Stock incentive plan is an important mechanism to the puzzle.It reconcile the benefit of stockholders and the managers,and play an important role in improve the corporate-governance.With the abolish of Measures for the administration of stock incentive of listed corporates,more and more corporates join the crowed to launch stock incentive plans.However,managers may as well impair the benefits of shareholders to gain their own benefits,especially in a circumstance full of information asymmetry and incomplete contracts.Stock incentive plans lost its function,and become a part of the principal-agent problem.For these problems,this article will firstly look through the relevant papers,then summarize the connections between stock incentive plans and earning managements,as well as take a brief look at the practice of the stock incentive plans.Based on these,we will make assumptions according to the theory of principal-agent,information asymmetry and contract.We take the corporates who launch stock incentive plans between 2010 to 2015.With the empirical analysis,we found that: Firstly,those corporates take real earning managements to modify the performance,which is aimed for a easy exercise benefits.Secondly,there is more real earning managements when those corporates take a restricted ballot and more incentive.Thirdly,the real earning managements is cased by the control of production and cost.Fourth,there is no evidence of accrued earning managements.According to these conclusions,we suggest that the listed corporate disclosure more information,especially about the cost of product and discretionary costs;Perfect the construction of incentive contract to prevent managers steal by real earning managements.The supervision department may restrict the stock incentive plan,complete the relevant laws.