The Impact Of Executives' Salary Reduction On Operating Performance And Earnings Management

A reasonable executive compensation incentive mechanism is the basis for effective corporate governance.However,in China,companies are frequently exposed huge salary,salary gap compensation chaos,this is not the incentive system of the excellent achievements.In September 16,2009,the Ministry of human resources and social security of China,jointly with the Ministry of Finance and other six ministries,issued a "Salary Limit Order" of central enterprises,which clearly defined the salary gap between the executives of the central enterprises and the ordinary employees.This article is related to the institutional background of China closely.Because the policy of "Salary Limit Order" is mainly directed against state-owned enterprises,private enterprises are not affected,so they are regarded as quasi natural experiments.The purpose of this study is to investigate the impact of executive pay reduction on business performance and earnings management in enterprises with different property rights.This paper selects 2007-2012 years(three years before and after the "Salary Limit Order" policy)data as research samples.The study found that for the central enterprises,affected by various factors such as institutional constraints,policy pressure impact force,when the salary gap between the executives and employees decrease,the business performance,the business performance of enterprises improved and accrued earnings management declined,enterprise information quality has been improved;For private enterprises,because they're not affected by policy and the degree of marketization are higher,the the salary gap between the executives and employees decrease,the business performance of the enterprises has declined,and the accrued earnings management and the real earnings management have not changed significantly.To some extent,this phenomenon has proved the tournament theory.This paper analysis the effect of China's government compensation regulation on central enterprises deeply,and discusses the influence of salary changes on business performance and earnings management.In the course of the study,taking private enterprises as the control group to find private enterprise salary changes on business performance and earnings management.It provides empirical evidence for the compensation management of enterprises under different property rights,and provides a theoretical reference for the reform of the compensation system for the heads of state-owned enterprises.