Research On The Ratcheting Effect Of Performance Targets Of Chinese Listed Companies

Taking the performance goal as the internal management means is one of the management means commonly adopted in the practice of modern enterprises.Performance management is also one of the hot issues in the research field of management accounting.Ratchet effect is also widely recognized in theory and practice,but this method of setting future performance goals based only on historical performance is generally considered to have a negative impact,which will reduce the efforts of managers,managers will hide their real ability information,and ultimately damage the interests of the client.The board of directors has the intention of motivating agents to disclose their performance truthfully.Therefore,this paper believes that it is possible for the client to adjust the performance standards for different agents with different abilities in order to obtain true information,so as to reduce the negative impact of ratchet effect.However,due to the availability of large sample data,most previous studies were based on one company or multi-business chain company and only discussed the ratchet effect at the internal level of the company.In this paper,the ratchet effect is studied in detail using publicly disclosed multi-industry data to analyze the characteristics of listed companies in China.Taking profitability as the proxy variable of the efforts of the board of directors,the profitability of the enterprise is measured by the rate of return on sales,and it is grouped according to the industry median.It is found that for agents with different profitability,the ratchet effect of performance target is different in strength and weakness.Data used in this paper is made up of the company's annual financial report,WIND and CSMAR database in China's a-share listed companies from 2007 to 2016 of 4706 valid samples using the unbalanced panel data,by building performance targets ratchet effect of econometric model,using fixed effect model,the empirical test in this paper,the basic assumptions,the following conclusions:(1)There is a ratchet effect in the process of performance target adjustment,and the ratchet effect is asymmetric.(2)In different profitability groups,the ratchet effect of performance target varies in strength and weakness.In addition,the high-earning group was more likely to lower the performance target,while the low-earning group was more likely to raise the performance target.This phenomenon is more obvious in non-state-owned companies.(3)State-owned enterprises are more inclined to raise their performance targets in the next period.Based on the above research,the conclusions of this paper enrich the domestic literature on ratchet effect,and provide a basis for alleviating the information asymmetry caused by ratchet effect.