An Empirical Study On The Impact Of Executive Compensation On Earnings Management From The Perspective Of Internal Control

In modern enterprises,the separation of ownership and management rights causes serious principal-agent problems between shareholders and managers.In order to reduce the high agency costs caused by this problem,shareholders and managers often sign compensation incentive contracts with corporate performance.Shareholders attempt to use compensation incentive contracts to bind the interests of managers and the interests of the enterprise,and urge the managers to actively manage the enterprise to maximize the value of the company.However,due to the incompleteness of the compensation incentive contract itself,managers may have an incentive to manipulate earnings in order to increase the level of compensation that they can obtain,thereby damaging the value of the company.In the existing domestic and foreign literature,scholars have not reached an agreement on the impact of executive compensation on earnings management.Some scholars believe that there is a correlation between the two,and some scholars believe that there is little correlation between the two.Following the occurrence of the Enron incident and the enactment of the Sarbanes-Oxley Act,internal control has drawn increasing attention from people from all walks of life.In China,after some policies and regulations that are related to internal control being issued,the attention of the internal control system has been greatly enhanced.A perfect internal control system can ensure that managers legally and compliantly manage the company.Therefore,it is necessary to consider the impact of internal control when studying the impact of executive compensation on earnings management.At present,the academic community generally divides earnings management into two categories,one is accrued earnings management and the other is real earnings management.This article intends to use data about listed companies of Shanghai and Shenzhen A-share between 2012-2018 to conduct research,and separately discuss the impact of executive compensation on both accrued earnings management and real earnings management.And then this paper introduces the internal control variable and verifies the role of internal control in the impact of executive compensation on accrued earnings management and in the impact of executive compensation on real earnings management.In order to further study the role of internal control,this article also divides the sample into a group with high internal control quality and another group with low internal control quality for group inspection.At the same time,the paper also makes a robust test to guarantee the reliability of the empirical results.The results of this study show that higher executive compensation will inhibit executives' manipulation of accrued earnings and promote executives' manipulation of real earnings.When considering the impact of internal control,high-quality internal control will deepen the inhibitory effect of executive compensation on accrual earnings management.In contrast,high-quality internal control will weaken the positive promotion effect of executive compensation on real earnings management.It can be seen that internal control is successful as a corporate governance mechanism to alleviate the principal-agent problem and reduce the agency cost of enterprises.In addition,in the robustness test,the measurement methods of accrual earnings management and real earnings management have been changed.The absolute values of accrued earnings management and real earnings management are used to perform regression again.The results obtained after the regression are consistent with the proposed hypotheses and the regression results described above.The research in this article has certain theoretical and practical significance.In theory,the research in this article enriches the existing relevant literature.In practice,this article provides some policy suggestions about executive compensation incentive and corporate governance mechanism.In terms of the corporate governance mechanism,enterprises should strengthen the importance of the internal control system,improve the construction of the internal control system,form a mutually restrictive situation within the enterprise,and avoid excessive rights of managers.Enterprises should also improve the company's independent director system and make independent directors really play a role in the company's internal supervision.Enterprises should strengthen the management of the disclosure of corporate internal control assurance reports,which makes sure internal control assurance reports can truly reflect the company's internal control.With regards to executive compensation incentive,it is necessary to comprehensively use financial indicators and non-financial indicators to evaluate the capabilities and operating performance of executives;it is necessary to pay attention to long-term incentive of managers,to avoid managers harming the long-term value of the company for their own short-term benefits;it is necessary to strengthen the construction of the disclosure system of the executive compensation system,which makes the executives face more supervision,and promotes the marketization of the executive compensation.