Research Of Enterprise Life Cycle, Equity Incentives And Earnings Management

Nowadays, companies are usually not ran by owners, the separation of management right and ownership makes the information between shareholders and managers asymmetrical, which leads to the agency cost. As infor-advantagers, from the rational economic man’s point of view, the operators are bound to maximize their own benefits via self-interested behavior. Equity incentive mechanism is a new system, which is incentive and restraint. It combines the interests of owners and operators, achieves benefit-sharing and risk-sharing pattern, aiming to incent operators more efficiently to create value for the enterprise and constraint operator’s earnings management behavior to a certain extent. However, the company operating results related financial index, which operators can know directly, is usually regarded as the evaluation index in equity incentive mechanism. In order to maximize equity incentive compensation, operators are tend to make full use of advantages of power and information for earnings management.Each stage in enterprise life cycle has different goals and financial characteristics, which affect the company’s operating conditions and financial index, at the same time,the company’s equity incentive mechanism is closely related to the accounting information, motivation and methods of earnings management are related to the company’s business goals and financial status. As a result, the characteristics of the enterprise life cycle have impact on equity incentive mechanism and earnings management, and in going further, the characteristics of the enterprise life cycle affect the correlation between them. Existing research on correlation of equity incentive mechanism and earnings management is very rich, but few research is about the impact of enterprise life cycle on the correlation, therefore, this article take this as a breakthrough point for related research.This article lists companies which implement the equity incentive mechanism as samples, makes empirical research on the correlation between equity incentive mechanism and earnings management on the basis of the existing theories and empirical results, considering the influence of the enterprise life cycle characteristics. And it studies the validity of equity incentive mechanism as the influence factors combining with the characteristics of enterprise life cycle. The study finds that the implementation of equity incentive mechanism can induce earnings management behavior, which is positively correlated; And extending the validity of equity incentive can inhibit earnings management behavior, which is negatively correlated. After grouping, In the growth stage, equity incentives and earnings management is significantly positive correlation, and the validity of the incentive and indistinctively negative correlation to the degree of earnings management. In the mature stage, on the other hand, the former two is not significant positive correlation, the latter two is a significant negative correlation. In the degenerating stage, all the correlation are not significant. We can know that the relationship between equity incentives and earnings management is different in every enterprise life cycle stage. Finally, this article put forward suggestions about setting up a perfect equity incentive mechanism, optimizing the environment of implementing and choicing equity incentive mechanism in different stages according to the research results.