A Theoretical And Empirical Study On Executive Stock Ownership And Company Performance

Executive stock ownership, which is overwhelmingly used in companies in developed economies to solve the principal-agent problems, did not perform very well, since it was adopted in China in the late 1990s. This is mainly because, China is experiencing the transformation from a planned economy to a market economy, during which companies encountered a lot of problems such as absence of beneficial ownership in SOEs and failure of manager’s market.This research makes special effort to develop a theoretical model, which takes all the characters of transitional economy into accounts, as well as an empirical one, which examines several hypothesis implied in the theoretical model. Also, this research takes three listed companies as examples to do some case study.The main conclusions drawn from this research are:(1) under certain circumstances, appropriate equity incentive can help to improve the performance of listed companies; (2)residual claims play an important role in the effectiveness of incentive contracts, and this resulted in the following fact——the impact of equity incentive on the performance of private companies and the state-owned or state-controlled non-state-owned companies shows significant differences; (3)ownership concentration is another key factor that has influence on the performance of listed companies. In this study, it appears that high concentration help to improve the company’s performance, which does not support the hypothesis in the model.The corresponding policy recommendations are, first, the development of capital market still needs to be strengthened, relevant laws and regulations to be improved, and the incentive mechanism of state-owned shares of listed companies to be reinforced; second, not all companies are suitable for the implementation of equity incentive, shares used as incentives should be appropriate to avoid side-effects; third, during the decision of an incentive contract, the differences in ownership, industry and size should be taken into account. An appropriate contract is designed to reduce agent cost as much as possible.