Research On The Relationship Between Executive Compensation And Earnings Management Of Listed Companies

According to the "rational person" assumption,individuals in economic activities aim to maximize their personal interests,which has triggered the motivation of executives to manipulate earnings in order to increase income.At the same time,the imperfection of internal and external supervision mechanisms has increased the possibility of executives' earnings management behaviors.In order to promote the convergence of the interests of executives and shareholders and reduce earnings management behaviors,the company has formulated a series of salary contract systems.However,in recent years,more and more scholars have found that the traditional salary contract system cannot effectively alleviate the principal-agent problem,but instead increases the possibility of executives to manipulate earnings.In order to test the impact of the salary incentive system on executive earnings management behavior,this paper divides executive pay levels into absolute pay levels and relative pay levels,or pay gaps.From the perspective of accrual earnings management and real earnings management,it firstly examines the relationship between absolute pay levels and accrued and real earnings management.Secondly,the relative pay level is divided into three dimensions: the internal pay gap between senior executives,the pay gap between senior executives and employees,and the external pay gap between senior executives,and their respective impacts on accrued and real earnings management behaviors are examined.Finally,this paper examines whether the relationship between pay levels and earnings management differs among companies with different property rights.It also analyzes whether the audit fees can effectively adjust the relationship between the two from the perspective of the external supervision and audit quality.The results of this study show that,firstly,the absolute and relative pay levels of executives,or,the pay gap,cannot inhibit the accrued and real earnings management,but instead become the motivation for executives to conduct earnings management.Secondly,through the property group test,it was found that compared with non-state-owned enterprises,the relationship between the absolute pay level of senior executives,the pay gap between internal and external of senior executives and earnings management is more significant in state-owned enterprises.And in both state-owned and non-state-owned companies,the pay gap between executives and employees can only trigger real earnings management.In the end,audit fees have an inhibitory effect on the relationship between executives' absolute pay levels and accrued and real earnings management,while in terms of relative pay levels,they can only restrain their relationship with real earnings management.This article supplements previous studies that only examined absolute pay levels and ignored relative pay levels,enriching the literature on the relationship between pay gaps and earnings management.Secondly,this article analyzes the relationship between the two from a perspective of property rights and external supervision.Finally,it provides reference opinions for the formulation of reasonable pay levels and pay gaps for listed companies of different natures,with a view to reducing the occurrence of earnings management behaviors.