A Study On The Mechanism Of Stock Option Incentive To Corporate Performance

Since the 19th century executive equity incentive has been a research focus in economics, management, accounting and banking. In the European developed countries and America equity incentive has been regarded as an important way to combine the benefits of corporate management and those of shareholders, and consequently to solve the principal-agent problems of modern enterprises. Equity incentive system has greatly developed in 1980s. It has played a positive role in improving modern entrepreneurial rules and stimulating economic growth. But at the same time many problems were exposed. For example, scandals in large corporations and accounting firms like Enron and WorldCom were concerned with misuse of stock option incentive system. Citigroup and Microsoft declared that they had abolished stock option incentive system, which shows its demerits. Its negative effects in reality are embodied in moral hazards. However, so far few theoretical literature have made any special analysis on how stock option incentive has influenced corporate performances from the angle of moral hazards. Therefore, from this angle this thesis did some research.The thesis made samples on the companies which at the end of 2012 have applied stock option incentive system since 2006 when the reformation on equity split was accomplished and new accounting standards and Equity Incentive Management of Listed Companies (trial) were officially implemented. In reference to related researches home and abroad, the thesis was based on principal-agent theory, incomplete contract theory, human capital property theory and residual claim theory. Combining literature review and theoretical deduction, qualitative analysis and quantitative analysis, empirical analysis and normative analysis, from the perspective of high level management it made a research on how the current stock option incentive system in China has affected corporate performances in inefficient investment, overcommitment and but dividends. It analyzed the real incentives why senior managers have chosen inefficient investment, overcommitment and but dividends, and disclosed problems in the current implementation of stock option incentive system. Objectively, the research on how stock option incentive has influenced corporate performances from the angle of moral hazards executive is the one of mechanism that combines theory and practice.This study construct the theoretical framework of stock option incentive.moral hazard executive and corporate performance.and conclude that the stock option incentive is indirect impact on the company’s performance by moral hazard executive.along the logic of stock option incentive-moral hazard executive-corporate performance," through theoretical deduction, analysis of the empirical test of the relationship between the threes and reveals the impact of stock option incentive mechanism of corporate performance, this paper will define moral hazard executive in investment, financing and dividend payments in the field of three opportunism behavior, namely inefficient investment, overcommitment and but dividends.The framework and logic thoughts are as following:first, study the correlation between stock option incentive and executive moral hazards executive, study the mechanism of how stock option incentive has influenced corporate performances and its process, it concludes that stock option incentive will lead to more moral hazard executive; second, study the relations between moral hazards executive and corporate performances, and analyze the effects made by moral hazards executive on corporate performances; further, study the correlation between stock option incentive and corporate performances; last, analyze the decisive role the board of directors plays as watchdog in the implementation of stock option incentive system.Compared with other literature, the originalities of this thesis probably are: (1) Research angle. The research on stock option incentive in Economics and Management has mostly focused on the positive effects of stock option incentive on corporate performances and not paid enough attention to the negative effects. This thesis tried to disclose the stimulating effects from the point of moral hazards, which is creative to some extent and let people have a comprehensive understanding of stock option incentive system. (2) Key concepts. The thesis made a new analysis from the point of corporate finance on the concepts of investment, financing and dividend policy. It tried to make a breakthrough on executive moral hazards in inefficient investment, overcommitment, but dividends.(3) Data-processing. By designing theoretical deduction and empirical study, it made an improvement on data-collecting and processing, making it closer to theoretical hypothesis. This was mainly reflected by using the proportion of stock options held by executives in total corporate shares as indicators to measure stock options, thus to make for the deficiency of stock options as virtual variables in the sample data selecting. (4) Empirical test. It constructed an analytical framework for the mechanism to measure the effects made by stock option incentive on corporate performances and elaborated the role as intermediary and bridge of moral hazards behaviors between stock option incentive and corporate performances. In other words, with stock option as explainable variable, corporate performances as explained variable, moral hazards behaviors as intermediary variable, supervision of board of directors as moderating variable, it constructed a reasonable empirical regression model and made an empirical test on the moderating function by board of directors and made a relatively realistic conclusion.The analysis and research made by the thesis on the effects of stock option incentive on corporate performances is a trial to make an improvement on the basis of analyzing the current literature. With stock option incentive, moral hazards behaviors and corporate performances as its core, the thesis studied the problems in Chinese corporate governance From the rules and norms, formation mechanism, behavior process. As a kind of investigation into research questions, the analytical framework, logic deduction and related empirical analysis are creative to some degree and in some scope. But for the limitation of the writer’s theoretical cognitive level and data resources, there must be some problems, which leave to be studied further.