Equity Incentive And Earnings Management

2016 was an extraordinary year on capital markets.In order to successfully list on the Growth Enterprise Market(GEM),Xintai Electric was identified numerous instances of fraud at the financial statements.Since that happened,a new round of financial review had been carried out by China Securities Regulatory Commission,for checking out the legitimacy and compliance,facticity and veracity,sufficiency and completeness of the financial statements of listed companies in China.Obviously,the authenticity of the information will be distorted in the interests of all parties under a tit for tat,what we can get from the financial statements are what the managers want to show,rather than its original appearance.In fact,there are many purposes for a company to manipulate the financial statements,and one of the reasons is to achieve the conditions of equity incentive.Currently,the exercise condition of equity incentive are mostly based on financial indicators,but due to the company's shareholders is not really involved in the management of the company,so they do not know the real situation of production and operating.The company managers are likely manipulate the financial statements because of the huge temptation by equity incentive.In addition,compared to the accrual earnings management,real earnings management is so subtle that it can not be easily found by external stakeholders.It's why managers prefer to real earnings management.Taking listed companies in China from 2005 to 2015 as the research object,this paper studied the relationship between equity incentive and earnings management.The findings of this article were: in the listed companies of China,the equity incentive plan is one of the factors causing the earnings management,and there was a negative correlation between equity incentive and earnings management.In addition,taking restricted stock as the incentive target can effectively prevent the opportunistic behavior of executives and improve the level of corporate governance.