Research On The Managers' Incentive Compensation And Earnings Management Of State-owned Companies

Managers'incentive compensation is an important governance mechanism to resolve the agency problem, meanwhile it is one of the motivations of earnings management. It has important theoretical significance and practical significance to study the relationship between the incentive compensation and the earning management of the state-owned companies.Based on the systematic review of the relevant research literature, under the special background of Chinese state-owned companies, this paper integrates the principal-agent theory, property rights theory, incomplete contract theory and other modern economic theories, uses contract analysis, normative analysis, empirical analysis and other research methods, follows the research path of "theoretical research-empirical study-Strategies", studies the topics of " the study of management incentive compensation and earnings management of state-owned companies" in a comprehensive and deep way. Some theoretical and practical valuable ideas and conclusions are obtained in the end.Firstly, this paper analyzes the related theories of incentive compensation and earnings management, and then sets up the theoretical analysis model to illustrate that under the incentive conditions of the incentive related to the performance of the company, the earnings management occurred in the necessary and sufficient conditions, and analyzes the model of earnings management behavior which is resulted by incentive compensation. It finds that the severer the company's external competitive environment, the greater likelihood of occurrence of earnings management; the higher the costs of earnings management, the more difficult for the managers to conduct earnings management. Therefore the level of the company's internal governance and external regulatory environment impact the earnings management, and the existence of earnings management opportunities may cause the fail of the incentives mechanism.Secondly, this paper studies the sensitivity of compensation to the performance empirically in order to examine if there are earnings management motivations in the state-owned controlling companies. By analyzing the incentive compensation system background of the state-owned controlling companies, this paper concludes that after the reform for non-tradable shares, the state-owned controlling companies face a more competitive environment and have a higher level of reward incentive intensity, which means that the companies have earnings management motivations. In the empirical result of the study of the sensitivity of management compensation to performance, it is also confirmed that the management incentive compensation is related to the corporate performance, indicating that the state-owned controlling companies have incentive compensation motivation created by the manager incentive compensation.Finally, this paper empirically tests if the earnings management motivation created by incentive compensation can weaken the effectiveness of incentives. Empirical research covers that the governance effect will be affected if the incentive mechanism creates the earnings management behavior, which is a certain kind of inefficiency of governance.Based on the above findings, this paper puts forward the system arrangement advices to improve the manager incentive compensation and the system arrangement of the corporate governance of state-owned controlling companies.