Accounting Conservatism and the Sensitivity of Management Compensation to Accounting Performance

This paper examines accounting conservatism in the listed companies in China by observing whether the sensitivity of management compensation to accounting performance is asymmetric.The observation shows that,when bad news comes,the sensitivity is higher than that when good news comes;what' more,either in companies with large shareholders or in state-owned companies,the asymmetric sensitivity is weakened.These findings not only provide the indirect empirical evidence that accounting conservatism exists in the listed companies in China,but also offer an explanation for its existence in terms of management compensation contract.