Relationship Study Of Executive Compensation And Earnings Management

With the gradual completion of the split share structure reform and matureimplementation of the new corporate accounting principles, China’s capital market hasbeen developing rapidly and constantly improved. However, in the process ofdevelopment, there are some problems and the earnings management is one of them.Executive compensation contracts are important factors of earnings management.How to improve managers incentive pay has become the focus of stakeholders insuppression earnings management.The paper selected sample of2007-2010in Shanghai and Shenzhen A-sharelisted companies as the data research. Drawing on the modified Jones model, puttinghandling Accruals absolute value under the line of the project as a proxy variable ofthe extent of earnings management, make the management short-term annual salary,long-term equity incentive and their cross-interaction term in multiple linearregression. The study concluded that short-term annual salary and earningsmanagement have a significantly positive correlation, and negative correlationbetween equity incentives and earnings management, but negatively correlatedbetween the two cross-interaction term and earnings management.The contract is divided into short-term incentive compensation of annual salaryand long-term incentive equity incentive, while establishing two interaction terms.Respectively, the three studies the relationship between earnings management and theintroduction of incentives and other spiritual aspects are the major innovations of thispaper. Combining the results of the Game Analysis and the regression analysis, thepaper gives policy recommendations. From the level of incentives: First, build andimprove the Remuneration Committee; Followed, improve the remunerationcontractual mechanisms; Finally, emphasis on the spiritual level incentive. From thelevel of constraint: Firstly, improve the Board of Directors; Secondly, improve theperfection of Supervisors and other governance structures; Finally, improve theinformation disclosure and strengthen supervision.