An Empirical Study Of The Relationship Between Executive Pay And Real Earnings Management

Earnings manipulation means of a company mainly include earnings management and real activities earnings management.At present,a large amount of academic literatures have been accumulated in academia.However,many scholars have found that more and more companies tend to use real surplus management activities to manipulate earnings with accounting standards and policies and regulations having been gradually perfect today.We know little about knowledge on the motivation of real earnings management in academia.Especially in the Chinese economic transition,the compensation of the senior executives of State-owned enterprises has captured a wide attention,which is not only related to the effectiveness of the salary system reform of state-owned enterprises,but also reflects the focus on financial fair distribution from all walks of life in China.In recent years,continuous rising of senior executives payment of Chinese state-owned enterprises have been widely questioned.Since 1999,the payment of the senior executives of Chinese state-owned enterprises has been controlled and regulated by the government.Under the numerous "payment limit" situations,the degrees of real earnings management of state-owned enterprises based on the incentives of compensation contracts and the impact of the structural power of senior executives on the motivation are worth exploring.Based on the principal-agent theory and hypothesis on management power and 10-year reform of the executive pay of state-owned enterprises,this paper focuses on the impact of the executive pay of state-owned enterprises on the real earnings management and the impact of the executive power on the real earnings management based on the incentives of pay contract by means of combing normative research and empirical research.Moreover,it also probes the differences between the central state-owned enterprises and local state-owned counterparts with the intention to check the government compensation control and the impact of the senior executive pay levels of different types of enterprises on the accounting behaviors of enterprises.In this paper,the empirical research conclusion lies in the following aspects:(1)in a common sense,the executive pay can induce the real earnings management,which is more evident in the local state-owned enterprises and less evident in the central enterprises.It turns out that the compensation incentive is the important factor to induce the executives to implement real earnings management in local state-owned enterprises;(2)"payment limit" effect on the excessively rapid increasing of the compensation has been gradually released,which is revealed that it is the senior executives' payment that induce the real earnings management before the implementation " payment limit ".With the gradual implementation of the "payment limit",the incentives of the senior executives based on real earnings management have been reduced;(3)with the structural power of executives incorporated in the analysis framework,increasing the structural power of the senior executives increase will significantly reduce the real earnings management based on compensation.Theoretically,this paper only chooses the dimension of the structure power senior executives,exploring the impact on the real earnings management based on compensation contract incentives,avoiding the interference of the other types of the executive powers and deepening and expanding the understanding and awareness of the executive power.Practically,this paper provides the empirical evidences of the relationship between the executive pay and real earnings management in the China's unique system so as to generate reference significance to the compensation reform of state-owned enterprises in our country and regulation of accounting behaviors.