| China’s Equity Incentives had developed very rapidly since China Securities RegulatoryCommission promulgated and implemented the law Listed Companys’ Equity IncentiveManagement Measures in2006.Equity Incentives have become increasingly concerned bysecurities market and listed companies as well as the academia. Equity Incentives canpromote the establishment of a performance-oriented culture and a good mechanism whichshare interests and restrain self-interested behavior between shareholders and professionalmanagers team, but may also lead to many problems such as the transfer of benefits,over-incentive, incentive manipulation and earnings management,and so on. There is hugegrowth room for China’s Equity Incentives,while earnings management have become anincreasingly outstanding problem in the process of Equity Incentives. Earnings managementis good for private interests of those who have acess to equity incentives,but misleed thejudgment about listed companys’ operational status of stakeholders such as minorityshareholders, investors, creditors, regulators,and thus make some damage to the developmentof china’s capital market.Therefore, it is meanigful to do some research on the topics such asexploring the inherent law of equity incentive process, how to inhibit earnings managementeffectively and how to promote the development of equity incentive heathly.Firstly, this paper reviewes the corresponding literatures about equity incentives andearnings management,especially papers on their inner relationship.Secondly,the paperanalyses the inherent law of equity incentive process.For any stock option incentive plan orrestricted stock incentive plan, according to specific content of the Equity Incentive plan, itswhole implemention process can be divided into the following three stages:the Baseperiod,the Acessment period,the Exercise/Unlocking period after the Acessment period.Based on this analysis, this paper makes five assumptions whose cetral view is that thedirection and degree of earnings management are different in these three periods.Thirdly, thisarticle makes an empirical test.It selects84Listed Compays from china’s A-share stockmarket which have implemented Equity Incentives from early2006to the end of2010.Thetest results basically support the above five hypothesis.And we can conclude that in thedifferent stages of the implementation of incentive stock options and restricted stock incentive,the direction and degree of earnings management are different.Finally,according to the results of our study, combined with present developing status,this paper states four recommendations: to strengthen the law regulation,to improveaccounting standards and system,to develop a reasonable equity incentive program, to further improve the governance of listed companies, and so on. |
