Executive Compensation, Board of Directors and Classification Shifting
- XU Peiji
- Shanghai University of Finance and Economics, 200433.
This paper studies the influence of executive compensation and the board of directors' governance on the classification shifting. The results show that the executive monetary compensation could induce the senior managers to carry out the classification shifting of gains while executive stock incentives and the lack of gap among senior managers' compensation could induce the classification shifting of both expenses and gains. A diligent, independent board of directors with the separation of the position of board chairman and that of corporate general manager can effectively identify and restrain these two different kinds of classification shifting. However, the board restrains to a less degree than executive compensation inducing the classification shifting. Furthermore, a good market environment, legal system and media supervision can effectively alleviate the inducement of executive compensation on classification shifting, while the board of directors can effectively remedy the defects of governance on classification shifting caused by the lack of legislation and media supervision, and exert a stronger restraining effect on classification shifting in a high-quality auditing environment. For the first time this paper combines China's institutional background and media supervision, studies the impacts of main governance mechanisms on different types of classification shifting and its reasons, creatively measures the degree of classification shifting about gains, and provides empirical evidence for regulators and the formulators of corporate governance mechanisms and accounting standards.
- Classification Shifting, Executive Compensation, Board of Directors, Corporate Governance, Earnings Management