Equity Incentive And Classification Shifting Earnings Management

With the widespread use of modern enterprise system in practice,the agent problem caused by the separation of two rights is becoming more and more silent,and the agent costs increase correspondingly.The original intention of designing the equity incentive mechanism is to solve this problem.As a long-term incentive system,equity incentive mechanism gives executives the opportunity to share the companys surplus property and motivate them working hard to improve the value of the company.Equity incentive mechanism was first appeared in the United States,and widely used in the western developed countries until 1990s.In 1993,equity incentive was first appeared in Chinese enterprises,and the company of China Vanke Co.,Ltd.was the first company introducing equity incentive to corporate governance."Administrative measures on equity incentive management of listed companies(trial)"came on in 2006,marking the equity system of listed companies and its formulation program has been the relevant laws and regulations.Today,more and more listed companies in China have led equity incentive mechanism in their corporate governance.However,due to the existence of factors such as the incompleteness of the contract,the information asymmetry between the owner and the operator,that is,the principal and the agent,it is possible for the executives to manipulate the reported earnings of the company in order to obtain the equity incentive income.In 2008,the CSRC promulgated "Equity incentive related matters Memorandum No.2",stipulates that if the performance appraisal indicators involve accounting profit,they should cover the net profit after deducting non-recurring gains and losses(the core surplus).It is possible for executives to choose a classification shifting to help them earn earnings when managing earnings.In the past,when scholars studied equity incentive to the impact of executive earnings management behavior,often concerned about the accrual earnings management and real activities earnings management,while ignoring the equity incentive to the impact of the classification shifting.Therefore,starting with the details of the equity incentive plan of listed companies inChina to study the relationship between elements of equity incentive program and earnings management,and explore how to improve designing the equity incentive program to suppress the classification of executive behavior,to play long-term role of equity incentive,which has a certain theoretical and practical value.In this paper,the non-financial A-share listed companies in China are listed as the whole sample data during 2009 to 2015,and the companies with the equity incentive plan in the whole sample are used as the sub-sample data.The empirical research method is used to explore the influence of the characteristics of equity incentive scheme on the executives' behavior of classification shifting.First,test the effect of equity incentive on the degree of classification shifting by the whole sample data.Then,test the influence of different equity incentive patterns on the classification shifting by the sub-sample data.After that,the sub-sample data is used as the constraint factor to study the influence of the degree on the classification shifting.Last,the influence of the incentive period as the time constraint on the classification shifting by the sub-sample is further studied.The research found that:(1)Equity incentive will promote the executives to classification shifting;(2)Compared to the stock options,the company executives of restricted stock make more classification shifting;(3)As a performance constraint element in the equity incentive program,the conditions of the exercise can restrain the executives'behavior of classification shifting,and the degree of classification shifting in the company of strict condition is less than the company of relaxed conditions;(4)As a time constraint element in the equity incentive scheme,the effective period of the equity incentive can not effectively inhibit the executives' behavior of classification shifting,on the contrary,the longer the incentive period,the higher degree of classification shifting.This paper is divided into the following six parts.The first chapter introduces the development of the incentive effect since the emergence of equity incentive and the means of earnings management commonly used by executives as the starting point,leads the research topic and puts forward the research significance,and defines the related concepts of the article.Finally,put forward the paper's methods and research frameworks.Chapter 2 reviews the status quo of research at home and abroad.This part reviews the literature review of three aspects,namely,the research summary of equity incentive,the summary of earnings management and classification shifting,the current situation of equity incentive and earnings management at home and abroad.Then,based on the existing literature,we find out and summarize the research perspective of this paper.Chapter 3 is theoretical analysis and research hypothesis.This' part introduces the agency theory,corporate contract theory,the theory of human capital in equity incentive process,convergence of interest hypothesis and entrenchment hypothesis about equity incentive.The three theories and two hypotheses are applied to the influence of equity incentive on the classification shifting.Finally,the four hypotheses of this paper are obtained.The fourth chapter studies the designing,making the sample selection,variable selection and model construction to carry out for the empirical analysis of Chapter 5.Chapter 5 is empirical analysis,and the robustness analysis.Chapter 6 are results and recommendations,this part summarize this study firstly,and the results of the study are analyzed,the limitations of this study are described.At the same time,this part also puts forward some suggestions for listed companies optimizing equity incentive plans and regulatory agencies making regulatory policies.In the process of inheriting the existing research results,this paper is based on the following innovations:(1)The impact of existing equity incentive program design on earnings management is focused on the impact of accrual earnings management and real activity earnings management,putting less attention to the impact of classification shifting.This paper explores the impact of equity incentive program on the third type of earnings management,that is,the influence of classification shifting and further studies the research on equity incentive and earnings management.(2)This paper explores the impact of equity incentive on the classification shifting from the perspective of the characteristics of equity incentive scheme.In the process of studying the influence of equity incentive on the classification shifting,the incentive model variable,the exercise condition variable and the incentive validity variable are introduced.