Does Ownership Structure Affect the Motivation of Compensation Contract of Earnings Management?
356
—From China’s Data
as the board, do not affect the compensation motivation
on earnings management. And the board size, board in-
dependence and the CEO duality do not present signifi-
cantly effect on earnings management, which shows the
weakness of corporate governance in China’s listed firms.
The reason why board’s function is so weak may be for
the current situation and background of China’s stock
market. Recently, in most listed firms, the board govern-
ance is still not so effectively and the independence of
the board is not so significant, which weaken the board’s
influence on earnings management. The board govern-
ance regulation and system need to improve, not just on
paper, but on real practice. Thus, as a emerging market,
the Shanghai Securities Exchange named year 2009 is
“the corporate governance year for China’s listed firms”,
which enhance more effective measures on corporate
governance, especially board governance.
Our findings have valuable implications for both the
security regulators and listed companies in the emerging
market of China. It is known that many security regula-
tors in the world, including both the developed and de-
veloping countries, have recognized the serious problems
of earnings management. They have proposed various
ways, known as the best practice codes, to reduce earn-
ings management and improve a firm’s overall govern-
ance standard. It is our belief that our study sheds light
on the relative importance of various corporate govern-
ance practices about earnings management, and should
provide useful information for Chinese regulatory au-
thorities to design the best practice codes tailored to the
Chinese institutional background and current level of
emerging market development. In addition, it also pro-
vide useful guide for firms to design their corporate gov-
ernance mechanisms so that they can decrease earnings
management, and enhance their corporate governance
and improve the Chinese emerging market to develop
healthily, stably and harmoniously.
7. Acknowledgements
We are grateful to many members of the 2nd Financial
Risk & Corporate Finance Conference in Dalian Univer-
sity of Technology and the 8th International Conference
on Supply Chain Management and Information Systems
in Hong Kong Polytechnic University. Both authors ac-
knowledge financial support from National Natural Sci-
ence Foundation of China (71172136) and the Funda-
mental Research Funds for the Central Universities
(DUT10ZD107, DC10040208) and New Century Excel-
lent Talents in University (NCET -10-0281). We are re-
sponsible for all remaining errors.
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