Large Shareholder Control, Executive Compensation and Earning Management: Empirical Study on Listed Companies in China

摘要

Based on agency cost theory, this paper examine the influence of large shareholder control on executive compensation and the extent of earning management induced by using LISREL model. We find that executive compensation is positive to earning management. After introducing the effect of large shareholder control, large shareholder control is negative to executive compensation level, and enhances the significant level of positive relationship between executive compensation and earning management. Empirical results indicate while corporate ownership concentration and lack of balance will restrain the power of executives on compensation contract, reduce compensation level, and will increase the motivation of earning management induced by compensation; in addition, this will also induce the collaboration between large shareholder and executives which benefit themselves by earning management. We stress that it is very important to strengthen ownership balance for improve the function of executive compensation and decrease earning management behavior drove by interest.