The Influence Of The Relevance Between Executive Compensation And Performance To Accounting Conservatism In Listed Companies

With China's capital market function perfecting and high-speed development of listed companies, the correlation between performance and executive compensation is enhanced in listed companies. Due to the market value of the enterprise can not be observed, the existation of information asymmetry between the manager and shareholders and the decomposition of performance, which induce enterprise to implement accounting surplus based compensation plan. This management incentive mechanism produced a kind of effect: Inorder to improve their salary level executives have motives to manage earnings by whitewashing profit, which will influences corporation's accounting conservatism. In 2006, China promulgated the New Accounting Standards, it makes accounting conservatism becomes the focus of academic and practical. The bust of global financial crisis in 2008 makes the application of accounting conservatism more important. As an effective corporate governance mechanism, accounting conservatism can effectively relieve information asymmetry problem and provide effective information to the Board of directors'supervision. It also plays an important role in reducing the cost of agency. In this system and economic background, to research the influence of the relevance between executive compensation and performance to accounting conservatism in listed companies of China has especially important significance for reducing the cost of agency and promoting enterprise to explore accounting conservatism-based new salary incentive mode.This paper combinings theoretical research and analysis method together to make research. In theory part, we reviewes documents related with executive compensation and accounting conservatism of listed company , expounds and analysises related concepts and theories involved in this paper and analysises the influence mechanism of the relevance between executive compensation and performance to accounting conservatism in listed companies. In empirical part, we use data of A-share listed companies from 2007 to 2008 which is after the new accounting standards promulgated as empirical research object. Using the modified Jones model to separate accruals to get the degree of earnings management and making absolute value of yarage accruals as amplitude of earnings management variable. Constructing models of this paper on the basis o f analysising the previous research model and introducing relevant variables in. Regressing the models and analysising the results using OLS method. This paper make ordinally regression analysis on the relevance between executive compensation and performance of listed companies, the relationship of relevance between executive compensation and performance and earnings management amplitude, the relationship of earnings management amplitude and accounting conservatism, the relationship of the relevance between executive compensation and performance and accounting conservatism in listed companies. The results shows that listed companies'executive compensation and performance have positive correlation, the relevance between executive compensation and performance and earnings management have positive correlation, earnings management amplitude and accounting conservatism have negative correlation, the deeper the degree of the relevance between executive compensation and performance will induce lower accounting conservatism.Making further research on the reasults we discover that: On one hand, the influence of the relevance between executive compensation and performance to accounting conservatism in listed companies is working through earnings management behavior. The empirical results show that the relevance between executive compensation and performance and earnings management have positive correlation which means the stronger the correlation between executive compensation and performance, the stronger earnings management motives the executives owe and will make larger earnings management amplitude. Earnings management amplitude and accounting conservatism have negative correlation, the increase of earnings management range reduces accounting conservatism of the listed company to a certain extent, which gives empirical test on the influence mechanism of the relevance between executive compensation and performance to accounting conservatism in listed companies.On the other hand, on the circumstance of the lack of executives long-term incentive mechanism in the listed companies in China, the currently using of single salary-performance incentive mode reduces accounting conservatism on a certain degree which will offer empirical evidence for the diversification development of senior management incentive mode in our country. At the same time the results of the paper not only provided indirect empirical evidence for the existence of accounting conservatism in our country but also explained its reason standing in the management compensation contracts angle.