Research On The Influence Of Executive Compensation Incentive On Earnings Persistence From The Perspective Of Internal Control

As the basic characteristics of earnings quality,earnings persistence not only reflects the future profitability of the company,but also has important reference value for stakeholders to make investment decisions.However,the principal-agent conflict leads to more noise in the corporate accounting earnings,which affects the improvement of earnings persistence.Executive compensation is regarded as an effective contract designed to alleviate the contradiction of principal-agent.Its economic consequences have always been a hot topic for many scholars.The successive introduction of pay control measures in recent years has further aroused widespread concern in the academic for executive compensation.More scholars study the impact of executive compensation on earnings quality based on earnings management,but few studies directly examine the effect of executive compensation on earnings persistence.In addition,with the improvement of China's internal control standard system,the constructive role of internal control has achieved initial success,and whether it will affect the performance of executive compensation incentives is also worthy of further study.In view of this,the paper takes A-share listed companies in Shanghai and Shenzhen from 2011 to 2017 as the research object,and uses the empirical research method to reveal the effect path of executive compensation incentives on earnings persistence and test the moderating effect of internal control in the relationship between the two.Firstly,the first-order autoregressive model is used to measure the earnings persistence.Based on the dual perspectives of pay level and pay gap,the impact of executive monetary compensation,equity incentive,in-service consumption and executive internal compensation gap on earnings persistence is comprehensively studied.Secondly,Dibo's internal control index is a proxy variable to verify the moderating effect of internal control.And then a series of robustness tests are conducted.Finally,the impact of executive compensation on accrual persistence and cash flow persistence is further studied.The empirical results show that:(1)There is a significant positive correlation between executive monetary compensation and earnings persistence.The higher the internal control quality,the more obvious the effect of executive monetary compensation on earnings persistence.(2)Equity incentive for executives also has a positive effect on earnings persistence,and mainly in the aspect of cash flow persistence.The high quality of internal control strengthens the effect of executive equity incentive on earnings persistence.(3)The normal in-service consumption of executives can increase the earnings persistence,while the excessive consumption has a depressing effect on earnings persistence,especially reducing the accrual persistence.When the quality of internal control of enterprises is higher,the positive effect of normal in-service consumption on earnings persistence is more obvious,while the inhibition effect of excessive consumption is weakened.(4)There is an inverted U-shaped relationship between the internal compensation gap of executive teams and the earnings persistence of corporate,and internal control plays a significant negative moderating role in the relationship between the two.This paper analyzes and verifies the impact of executive compensation level and compensation gap on earnings persistence,and examines the moderating role of internal control,which not only enriches the research on the factors affecting earnings persistence,but also provides policy recommendations for enterprises to improve earnings persistence from the perspective of the improvement of executive compensation system and the construction of internal control.