The Correlation Between Compensation Of Top Managements And Earnings Management In Private Listed Companies

With the improvement of state systems, it requires to use the size of executiveincentive compensation as a measure of corporate performance, making the determinationof the executives’ remuneration connecting with corporation value, which is a progressiveway of executive incentive compensation. However, this system also brought acorresponding negative effect, and the incidence of various accounting scandals seems to bea manifestation. Enterprise senior management within the constraints of this paymentsystem could increase their benefits by earnings management, but neglect increasecorporate value. In recent years, earnings management has attracted extensive attention athome and abroad. According to the contract theory, corporate senior management may holdspeculative mentality to use earnings management, for an increase of their own interests atthe expense of the other party of the contract, and excessive earnings management will havean impact on the quality of financial information.30years of reform and opening up, the private economy changing from the vulnerablegroups to an important part of the national economy, its active state of development hasbecome a new economic growth point of the national economy. In recent years, privateenterprises to accelerate the pace of the listing, the senior executives compensation of manyprivate enterprises continue to be pushed to the cusp.A certain number of shares hold byexecutives, this part of the motivation is magnified in the securities trading market. If theexecutives with thousands of those salaries own this part of the enlarged share incentive,they may even be worth a hundred million. However, some executives also have tens ofthousands of annual salary, so what are the factors making the wide gap between this. Asidethese objective factors such as firm size, if the executives of private listed companyexecutives will use remuneration means to increase their surplus revenue or not, and I thinkthe study of the correlation between pay of top managements and earnings management inprivate listed companies is very necessary. Recent years, more and more people study andattention the relationship between executive pay and earnings management, most researchesare concentrated in the whole listed company or only for state-owned enterprises, butprivate listed companies are not so many. This article is based on the above theoretical basisand social background. Due to the current structure of listed companies executivecompensation including monetary compensation and non-monetary compensation, so thisarticle will study the correlation between monetary compensation and executivesshareholding and earnings management in private listed companiesIn this paper, based on a lot of literature, we explained the significance, background and theoretical basis. First, we study monetary compensation and executives shareholdingby normative research, and then select monetary compensation and executives shareholdingand related financial data of enterprises between2009-2012of the private listed companies,calculate private listed companies operability accruals using the modified Jones model asearnings management’s substitution variables, then analyze the correlation betweenexecutive monetary compensation and earnings management, executives shareholding ratioand earnings management by empirical Research. The main conclusions are: after added thecross-term of the executive pay and earnings per share, executive monetary compensationand earnings management showed a significant negative correlation in private listedcompanies, which indicating that the lower the executive monetary compensation, the moreearnings management. After studying the relationship between different proportions ofexecutives shareholding and earnings management found that20%-40%stake in theexecutives have a strongest motivation for earnings management, and the others are notsignificant.Finally, according to the empirical results, we combined with the background ofChina’s private listed companies, and offered suggestions to improve the salary structure ofprivate listed companies’ executives in order to reduce possibilities of earningsmanagement for their own interests.