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An Empirical Study of the Relationship between Executive Pay and Earnings Management

Author: LiuHuiLi
Tutor: WangLing
School: Chinese Geology University (Beijing)
Course: Accounting
Keywords: Executive compensation Managerial power Accounting earningsmanagement Real earnings management
CLC: F272.92
Type: Master's thesis
Year: 2014
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Abstract


Earnings management has been a hot research scholars, executives incentive isone of the core issues of corporate governance. Under the influence of the worldfinancial crisis and China’s current region, industry income gap is widening, thedistribution pattern of imbalance, excessive salaries of senior executives is attractingattention of the community. Although effective incentive mechanism for a salarycontract can not only reduce the company’s principal-agent costs, but also give fullplay to make executives initiative, enthusiasm, to achieve the interests of shareholdersand personnel executives. But we found that in practice the optimal contract theoryfor incentive pay cannot explain some of the problems that "remuneration mystery.Executives may use their power custom salaries, making it the motivation to seek highreturns weak by earnings management.According to the optimal contract theory and management power theory, Weresearch the relationship between executive compensation and earnings management,executive power influence on relations between the two. Since the enactment of SOX,the mean of earnings management has changed and corporate governance and internalcontrol system gradually improved, In this paper, we will conduct research fromaccrued earnings management and real earnings management aspects. In2007-2011,the financial data of listed companies in Shanghai and Shenzhen A shares for the study,empirical results show that executive pay and accrued earnings are not significantlycorrelated, but with real earnings showed a significant negative correlation. Whenexecutive pay is low, executives manipulated accounting profits tend to be more realtrading activities; General manager and chairman of two jobs with one, equityrestriction and size of the board to build a comprehensive index as an alternativevariable executive powers. using regression analysis the relationship betweenmanagement powers and the executive salary, Found that there is indeed aphenomenon custom executive pay, executives use their power to get more directchannels of rent-seeking, but reduced its earnings manipulation by means of high-riskbehavior profitable, it also reflects the high from the other side pipe failure salaryincentives.Therefore, it should be from the optimization of the structure of executive pay,improve enterprise performance evaluation criteria and the strengthening of external governance within the company to start, to avoid the use of executive power toconduct its own rent-seeking behavior, so pay incentives to play better results.

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CLC: > Economic > Economic planning and management > Enterprise economy > Enterprise planning and management decision - making > Corporate Administration > Personnel Management
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