Executive Restricted Stock Incentives And Earnings Management

Since the first release of the management measures in 2006,equity incentive has gone through 14 years of development practice.As an incentive mechanism,it is often used to mitigate principal-agency conflicts and increase the value of the company.However,the implementation effect of the equity incentive plan has also been questioned by the academic community and the industry,and the possible earnings management is the major controversy among them.The research on the relationship between equity incentives and earnings management has not reached agreement,and it is not yet possible to determine whether equity incentives will lead to the company's earnings management behavior.In addition,a review of the existing literature reveals that there are certain differences between restricted stocks and stock options,and restricted stock has become an important choice for more and more companies due to the advantage of directly granting the residual income claims to the incentive objects,but there are only a few literatures that conduct specific research on restricted stocks.Based on the above background,this article will study the relationship between executive restricted stock incentives and earnings management,providing new evidence for existing research from a new perspective on restricted stocks.The research mechanism is that under the assumption of the bonus plan hypothesis,executives have the motivation to management earnings during the incentive plan to increase personal income.Incomplete contract theory and information asymmetry theory prove that there are certain external environmental conditions for the realization of this self-interest behavior.There are some differences among the restricted stock incentive plans of different companies,and differences in grant price regulations,performance evaluation requirements and lifting of sales restriction arrangements have an impact on the motivation and behavior of executives' earnings management,making the key indicators corresponding to these fields difficult to measure at the same time.Because why and how companies conduct earnings management is a question of "why" and "how",the case study has obvious advantages.In addition,there are not many companies that fully implement the entire budget stock incentive plan,which may lead to deviations in empirical research results.Therefore,this article chooses case study method to conduct a personalized case analysis of Sanju Huanbao.The issuer of the restricted stock,the self-interest motivation,and the earnings management methods which may be used are all included in the research object,which is helpful to discover the specific path of earnings management.First,based on the performance of Sanju Huanbao,which mainly refers to changes in revenue and the quality of earnings,I preliminarily judge that the enterprise is likely to increase their reporting earnings in the first three years of the restricted stock incentive plan.Then I explore which earnings management methods are used by enterprises through fully exploring the impact of restricted stock incentives on earnings management and understanding actual corporate behavior.This study finds that companies issuing restricted stocks conduct upward earnings management during the period of performance appraisal,and possible measures include reducing discretionary expenses,accruing less asset impairment losses,increasing investment income,increasing non-recurring gains and losses,conduct related transactions,etc.The practical significance this article hopes to achieve is: it will help the judicial department to improve the rules of equity incentives;help the market supervision department to monitor those companies which issue restricted stocks;help listed companies to formulate more scientific and effective restricted stock incentive plans;help minority investors to identify earnings management that occurs during restricted stock incentives and make better investment decisions.