Empirical Research Of Listed Companies Equity Incentives And Earnings Management

Since1950s, as a kind of effective incentives, equity incentive derived fromhigh speed development phase of developed country (particular in America) and hasbeen widely applied. In2006, our country started the formal implemention of equityincentive system. The original purpose of the system is to lower the agency costbetween the shareholders and managers. However, various problems also arise easilyin the implementation process, such as manager’s moral hazard and informationasymmetry used by managers to manage the earning, against the interests ofshareholders.The paper is based on principal-agent theory, contract theory, asymmertricinformation theory and other theories, analyzes the China’s equity incentives andearnings management from theoretical and empirical angle. First recalls the relevantresearch literature at home and abroad, sums up the theoretical foundation of equityincentives and earnings management, describes the motives and methods of earningsmanagement, and then analyzes the phenomena of equity incentives in listedcompanies. We find that the managers of listed companies in the implementation ofequity incentives system have the motives of earnings management. Based on thesestudies, this paper selects190listed companies which have proclaimed they willimplement equity incentives from2011to2012as a study sumple. Then we choosethe variables of equity incentives and earnings management to construct the model,and does a demonstration research of the listed companies between equity incentivesand earnings management by using the statistical software.The result showing that: management of listed companies in the implementationof equity incentives system, exist in the pursuit of their own interests, and the degreeof the earnings management is related to the degree of equity-based incentives. Alsothe analysis reveals that: earnings managemet has a negative correlation with debtratio, and a possitive correlation with net assets income rate. Finally, this paper brings up relevant policy-related suggestions, combined with theempirical fruits and the practical circumstance.