Study On The Influence Of Managerial Risk Preference And Equity Incentive On Earnings Management

As a long-term effective incentive mechanism, Equity incentive plays an important role in mitigating agency conflicts and reducing agency costs. However, the mechanism of equity incentive also will induce managerial motivation for earnings management to some extent, when the manager wants to gain the income of equity incentive in the condition of asymmetric information and asymmetric information, all of which will damage the interests of shareholders and related parties. In our country, the related research of equity incentive theory starts late, in view of which, there are many deficiencies in incentive policies, managerial practices, etc. Thus, it is significant to research the phenomenon of earnings management about listed company that has implement the equity incentive.In this paper, drawing on the basis of existing studies, the listed company which had firstly implement the equity incentive during the year from 2007 to 2012 has be chosen as studying object. The paper starts from two angles which are equity incentive models and managerial risk preference, verifying the existence of earnings management of companies which has implement the equity incentive, and mainly analyzing the different equity incentive modes, the different manager’s risk preference to the degree of earnings management. The results show:comparing to the companies without equity incentive, the managerial of companies which has implement the equity incentive have stronger motivation, which will induce greater behavior of earnings management. Further evidence shows that the model of restricted stock incentive will result in greater earnings management comparing to the model of stock option. The reason of which is the model of restricted stock incentive chooses accounting indicators as standard, and the model of stock option chooses the marketing indicators as standard, while the managers have more power on accounting indicators. It also shows that the behavior of real earnings management is more prominent than accrued earnings management. In addition, the level of managerial risk preference have effect on company’s earnings, and the higher level managerial risk preference, the greater degree of earnings management through production control, cost control and sales and other means of control. Finally, the bigger intensity for managers from equity incentive plan, the more the plan will stimulate managers to manipulate earnings. The asset-liability ratio is able to curb the behavior of earnings management of managers, namely, the company with high asset-liability ratio was drawn the attention of external regulators, which plays a supervisory role to managers. The equity balance degree is able to curb the behavior of earnings management of managers.namely, the company with effective equity balance degree can curb the behavior of large shareholders control managers, and operate as large shareholders’ wish, which can control the behavior of large shareholders in a certain extent.