An Empirical Study On The Relationship Between Equity Incentives And Earnings Management In A-share Listed Companies

Equity incentives have been implemented in our country for more than 20 years,and have achieved remarkable results in reducing the contradiction between shareholders and management agents.However,it also gradually exposed the disadvantages.Earnings management is one of the issues that scholars and regulators are focusing on.Earnings management distorts the state of the company,misleads investors,regulators,etc.to judge and damage related investors’ interests.Research on the status of equity incentives found that equity incentives can be divided into the base period(one year before the grant date)and the equity incentive period(validity period).Understand the inherent laws of executive earnings management at different stages of equity incentives.It will help supervise institutions,companies and investors to conduct targeted supervision and curb earnings management.This article first reviews the research on the relationship between equity incentives and earnings management.And analyze the motives of managers to earnings management during the equity incentive base period and equity incentive period.And the impact of earnings management on performance size and performance volatility.Based on this,two assumptions are put forward: 1.In base-period of Equity incentive,managers will lower the base period’s performance in order to reduce the difficulty of achieving the subsequent performance standards;2.During the period of equity incentives,managers will smooth the performance in order to obtain more incentive payments for the period.The empirical approach to the base period assumption of equity incentives is to use the Jones model to measure the size of equity incentive base period earnings management.T-test the result,if the result is significantly less than 0,It show that there is earnings management in the base period.The empirical approach to the period assumption of equity incentives is to examine whether the volatility of the growth rate of net profit during the period of equity incentives has significantly decreased,so as to judge whether there is earnings management during the equity incentive period.Then take the empirical analysis of 26 listed companies that have completed equity incentives from 2006 to 2016.The empirical results don’t support the assumption that there is significant earnings management in the equity incentive base period,but support the assumption that there is significant earnings management during the equity incentive period.Combining the results of two empirical studies and equity incentives analysis,The reasons that there is no earnings management in the equity incentive base period may be that effective supervision curb the managers.Therefore,it is suggested that the newly promulgated "Equity Incentive Management Measures" should not relax supervision over the base period.Earnings management during equity incentives indicates that supervision during the period should be strengthened.It is also recommended that companies that implement equity incentives limit the upper of equity incentive payments,and set performance requirements reasonably to curb managers.