Empirical Research On Correlation Between Proift And Loss From Fair Value Changes And Executive Compensation

The research on correlation between executive compensation and profit and loss fromfair values, was based on the agency theory. Under the modern enterprise system, theownership and control of the enterprise are separated, business owners that shareholdershave the final property ownership and the residual claims, and the managers agent thebusiness decision-making power, but the final decision consequences are borne by theowners. Therefore, in the case of the two rights separation, there is a "principal-agent"relation between the shareholders and the operators. According to the "rational agent”hypothesis, the targets will always be differences between the principal (owner) who areseeking to maximize their utility and agent (operators). And, as a result of the existence ofmarket information asymmetry phenomenon, agents may choose the enterprise themanagement goal to achieve personal utility maximization, even at the sacrifice of theinterests of the owners. Therefore, it requires the enterprise to establish effectivecompensation contracts. Because effective compensation contracts can excite the workenthusiasms of agent, maximum limit to reduce agency costs and protect the interests ofthe owners. And accounting information especially net profit because of the noise is smallas the foundation of set executive pay, and are widely used in Chinese enterprises.January1,2007, the new accounting standards which came from China have beenused in listed companies, the biggest bright spot of introducing the new guidelines is theintroduction of fair value measurement attributes. At present, most of the building of ourcountry’s modern enterprise executive compensation is on the basis of the corporateperformance. In this kind of performance, pay contract mode, the executive pay andcorporate performance is a direct relationship. Therefore, the managers out of self-interestconsiderations will pay attention to the accounting information and accounting policy thatwill influence the performance of enterprise. Due to the net profit is the main measurecorporate performance, and thus changes in fair value, as an important part of net income, will inevitably affect the corporate performance, which was correlated with executive pay.Are the influences of changes in fair value impact on executive pay and other surplusinfluence on executive pay consistent? Is there viscous characteristics of executivecompensation? This article is on the basis of previous study, uses of accountinginformation disclosure of listed companies and data information provided by theprofessional statistics database to review introduced fair value measurement attributesimpact on executive pay. The findings contribute to a better understanding of listedcompanies in the usefulness of accounting information, so as to executive compensationincentive Provide a reference design of the system.This paper, firstly, reviews theory of the economic consequences of fair valuemeasurement, the relationship between executive compensation and accountingperformance and the relationship between fair value and executive compensation,combing the relevant research results of scholars both at home and abroad, and analyzesthe related theory foundation. Secondly, on the basis of predecessors’ research and basedon relevant theoretical analysis, this paper put forward the hypothesis. Lastly, based on asample of the changes of fair value in A-share listed companies from2009to2011, thisessay focus on the study of the impact of fair value measurement on executivecompensation. The main conclusions are:(1) Hold the fair value earnings of listedcompanies, executives’ compensation and earnings to changes in fair value is positivecorrelation, and the relationship is significant.(2)The companies that hold the fair valueearnings, management pay for gains on the changes in the fair value of the sensitivecoefficient is significantly less than the coefficient of sensitivity to other surplus. It showsthat the client give the gains on the changes in the fair value of a lower proportion of salaryincentive, while for other surplus gives a higher proportion of salary incentive, becauseother surplus get less affected by the external environment, the management should paymore efforts for it. It shows that there is asymmetry phenomena between the effectiveincentive on fair value gains and the weak disciplinary on fair value losses in our country.