Research On The Effect Of Earnings Management And Corporate Governance On Expense Stickiness

Expenses are closely related to the operations of the companies.Expense stickiness has received extensive attention from scholars for the reason that it involves both financial accounting and management accounting.Expense stickiness mainly refers to the phenomenon of expenses' abnormal growth in the enterprises.This will not only adversely affect the operations of the companies but also be detrimental to the improvement of corporate performance.Therefore,it is of great significance to research how to mitigate the expense stickiness.Currently,scholars mainly think the cause of expense stickiness is the principle-agent problem.Specifically,the agency problem causes the managers to generate self-interest behaviors,and then managers will manipulate the expenses and ultimately leading to the emergence of expense stickiness.The roles of corporate governance are to supervise and motivate all kinds of events that occur in the companies.It can monitor the managers' behaviors,and this will affect the expense stickiness.Firstly,this article deeply explores the causes of the expense stickiness and earnings management and the role of governance through incomplete contract theory,principal-agent theory and corporate governance theory.Then it analyzes the relationship between earnings management,corporate governance and expense stickiness.On the basis of the theoretical analysis,this article selects the manufacturing listed companies in A-share market of Shanghai Stock Exchange and Shenzhen Stock Exchange from 2007 to 2016 as the research object to make an empirical study in three aspects as followings:(1)The existence of expense stickiness in listed companies.(2)The relationship between earnings management and expense stickiness.(3)The relationship between corporate governance and expense stickiness.(4)The different effects of earnings management on expense stickiness in different levels of corporate governance.The result shows that there is an expense' abnormal increase problem in listed companies.Specifically,when the income increases by 1%,the expense will increase by 0.625% and when the income decreases by 1%,the expense will decrease by 0.395%.Secondly,in the corporate governance mechanism,the supervisory mechanism and the incentive mechanism can weaken expense stickiness.Then the positive accrued earnings management reduces the expense stickiness,and low level of the incentives and supervision can enhance this relationship.The negative accrued earnings management can increase the expense stickiness,and higher incentive level and supervision level can weaken this effect.In addition,the effect of real earnings management on expense stickiness has not been tested,but real earnings management can inhibit expense stickiness in the low degree of incentive group.According to the definition of corporate governance,this article divides it into two mechanisms: incentive and supervision.Then analyses the roles of incentive and supervision in the relationship between earnings management and expense stickiness.In addition,this article puts forward some relevant suggestions from the perspective of incentive and supervision aimed to reduce the earnings management and to explore the path of expenses management.