Accounting Stability, Ownership Characteristics and the Effectiveness of Compensation Contract -- Empirical Study of 2007-2010 China Listed Companies

This paper studies the relationship between accounting stability and salary contract based on the contract theory. Our study shows that improvement in accounting conservatism increases the sensitivity of managers´ salary to return on accounting and also is correlated to market performance of the stock price. The sensitivity of management salary to return on accounting in state-owned enterprises increases with the strengthening of accounting stability , but the salary scheme is not related to share price; in non-state-owned enterprises, management salary is not linked to return on accounting, but is affected by the variance of share prices.