The Impact Of Executive Compensation Gap On Earnings Management Of Listed Companies

Earnings management is a direction that scholars have been focusing on for a long time.At present,due to the imperfect accounting laws and regulations in China and the lack of supervision by regulatory authorities such as the China Securities Regulatory Commission,pay contracts,debt contracts,and regulatory motivation have become an excuse for the company's executives to perform earnings manipulation,which has brought about serious consequences for China's accounting information distortion.At the same time,the use of a modern enterprise system has created the problem of separation of corporate ownership and management rights.The company's senior management understands the company's specific plans for business development,while the owners mainly monitor and guide the development of the company.Therefore,the company's business development depends on senior management personnel.In order to enable senior executives to fully utilize their capabilities,the owners have provided executives with different types of compensation incentives.With the transparency of executive pay disclosures and the emergence of sky-high executive compensation,executive compensation has gradually aroused scholars' questions.The internal pay gaps of senior executives in the same company and the external pay gaps among executives in the same industry involve fair issues.The research direction of executive compensation has shifted to the issue of executive pay gaps.First of all,this paper uses the literature review method to sort out and analyze the impact of executive compensation on earnings management,the effect of executive compensation gap on corporate performance,and the effect of executive compensation gap on earnings management in foreign and domestic literature.The impact of executive pay gaps on earnings management is relatively new and has become the entry point for this article.Secondly,based on the relevant theories of principal-agent theory,contract theory,fairness theory and behavior theory,this paper analyzes the impact of executive pay gaps on earnings management of listed companies and puts forward the research hypothesis.Then,on the basis of theoretical analysis,this paper conducts descriptive statistical analysis,correlation analysis,and multiple regression on the selected 11873 sample data for the five years from2012 to 2016.The regression results show that the greater the internal salary gap of seniorexecutives is,the higher the company's earnings management is,in other words,the executive compensation gap caused by high levels of unfairness and sense of exploitation can cause executives to manage earnings;the greater the external pay gap for executives is,the higher the company's earnings management is,in other words,executive external pay gaps can make executives feel unfair through comparisons.And then,senior executives use earnings management methods such as selecting accounting policies and changing accounting estimation methods or restructuring business activities to reduce pay gaps;in the group inspection of state-owned enterprises and non-state-owned enterprises,compared with state-owned enterprises,the higher the internal salary gap of non-state-owned companies' executives is,the higher the company's earnings management is;at the same time,the greater the external pay gap of non-state-owned companies' executives is,the higher the company's earnings management is.Finally,based on the regression results,this paper suggests that companies should put forward for enterprises to improve the disclosure information of executive compensation,reduce the gap of executive compensation,and enrich the forms of compensation incentive.At the same time,it is suggested that regulators should consider the executive compensation gap when they monitor earnings management.The innovation of this paper is not only to study the impact of the executive pay gap and executive external compensation on earnings management,but also consider the impact of the two on the earnings management under different property rights.