Is it governance or ownership that affect the motivation of compensation contract on earnings management? - An empirical study on Chinese listed firms

This paper is to explore ownership structure and corporate governance effecting on earnings management, especially on how to constrain executive compensation motivation to earnings management. We use five variables to quantify various corporate governance mechanisms including ownership structure and executive compensation for 1024 listed firms sample from 2007 to 2008. We find that earnings management is positively affected by executive compensation motivation, while this influence is constrained by ownership concentration. This finding reflects the current situation of corporate governance in China. Therefore, such a significant relationship is useful to control level of earnings management and improve the China´s capital market developing healthily, stably and harmoniously.