Research On The Correlation Between Management Incentives And Corporate Earnings Management

With the comprehensive reform and rapid development in capital market,the introduction of compensation and equity incentives has promoted the development of the capital market.However,it complicates the motivation and form of earnings management of listed companies in China.Companies are motivated by capital,supervision,contracts,etc..All of these will enable management to whitewash the company's financial position through earnings management in order to obtain a substantial financial report,or directly manage earnings through real and abnormal business activities.Management incentives have become one of the important mechanisms for corporate governance.Reducing management's earnings management behavior is an important purpose of implementing management incentives.Some scholars believe that management incentives can act as a constraint on earnings management;some scholars believe that management incentives will induce earnings management behavior.Whether management incentives can play a constraint role on management earnings management behavior is the direction and goal of this study.And then study how management's shareholding ratio will affect such relationships.This paper first proposes hypotheses through literature research,background analysis of GEM and related theoretical analysis.Then through the intangible assets Jones model of Lu Jianqiao and Roychowdhury model,we calculate the level of the accruals and real earnings management to measure the level of earnings management of listed companies.This article uses all GEM listed companies from 2011 to 2016 as a sample to conduct empirical research.A total of 2190 valid samples of 537 GEM listed companies were obtained after screening.According to the standard of influence of shareholders on the number of shares held by the company,and according to the proportion of management shares held in the total share capital,the sample is divided into four parts: no influence,influence,major influence and control.This paper selects accrued earnings management and real earnings management as explanatory variables,management stock ownership,salary incentives,and perks levels as explanatory variables,as well as company size,profitability,capital structure,growth,etc.as a control variable.We first conduct a full-sample regression analysis,and then according to the proportion of management's shareholdings divide them into four parts for regression analysis.After research,this article draws the following major conclusions:(1)In the full sample,there is a significant negative correlation between compensation incentives and the two types of earnings management.There is a significant negative correlation between perks and the two types of earnings management.There is no significant correlation between the level of management stock ownership and the two types of earnings management.(2)The increase in the level of management's shareholding will make management remuneration more effective in constraining its accrued earnings management practices.(3)The reduction in the level of management's shareholding will make it more effective for management's perk to constrain its accrued earnings management practices.(4)Regardless of the level of management's shareholding,the remuneration of the management can constrain the actual earnings management behavior of the management,and the increase in the level of management's shareholding will make management remuneration to have a greater restraining effect on the actual earnings management behavior.(5)When management's holdings influence or control the company(the management's shareholding ratio is no shareholding,less than 20% or higher than 50%),the increase of management's perk can reduce real earnings management activities.