Equity Incentive, Product Market Competition And Earnings Management

With the development of modern company system,equity incentive has become an important way to solve agency problems under the "separation of powers" system,and constitutes an important part of the performance appraisal of managers.In view of this,China’s Securities Regulatory Commission in 2006 issued the "Share Incentive Management Measures for Listed Companies(Trial Implementation)" and formally began to implement.On this basis,the Securities Regulatory Commission promulgated in 2016 the "Stock Incentive Management Measures of Listed Companies",which further regulates and restricts the stock incentive system,which marks that the stock incentive system in China has entered a perfect stage.Since the 21 st century,China has been developing and standardizing the order of capital market,which not only effectively promotes the reform of mixed ownership of state-owned enterprises,but also provides good external conditions for listed companies to implement equity incentive system.At present,China is in the period of economic restructuring and upgrading,and the difference of enterprise nature is one of the most important differences in the background of ownership.Because state-owned enterprises and non-state-owned enterprises have different policy requirements in equity incentive,state-owned enterprises often need to ensure the safety of state-owned assets,and their equity incentives have more stringent constraints.Therefore,the incentives for executives may be insufficient,which makes the effect of equity incentive system in state-owned enterprises not obvious.It has been pointed out in the literature that although equity incentive is conducive to improving corporate governance,it will lead to managers’ motivation to manipulate earnings.In this case,product market competition as an important external governance mechanism,to a large extent,will affect the earnings management behavior of enterprise managers,and then play an important role in improving the level of corporate governance.Therefore,based on China’s unique institutional background,this paper combines internal and external corporate governance factors,combines equity incentives with market competition,examines the impact of both on the quality of corporate information,and explores whether external governance can make up for the deficiencies of internal governance,and more closely to the actual environment in which enterprises are located.Based on the sample of listed companies that implement equity incentive in A-share market from 2012 to 2017,this paper brings equity incentive and product market competition into the same analysis framework,and explores the relationship between them and earnings management level of listed companies.The research finds that:(1)Compared with state-owned enterprises,the stronger equity incentive is,the higher the level of accrued earnings management of non-state-owned enterprises is,and the lower the level of real earnings management;(2)Compared with state-owned enterprises,the more fierce product market competition is,the higher the level of accrued earnings management of non-state-owned enterprises is;(3)Compared with state-owned enterprises,the higher the degree of product market competition is.In the case of non-state-owned enterprises,the relationship between equity incentives and earnings management is more significant.This paper provides a theoretical basis for further improving the internal governance mechanism and external market competition,and is also conducive to more objective evaluation of the accounting information quality of listed companies by regulatory authorities and investors.