Study On The Influence Of Different Incentive Motivation On Investment Decision

How the executives with equity incentive influencing on corporate investment decision-making has becoming a hot topic in the modern corporate finance research area, and formed widespread controversial results. Unfortunately, previous studies have rarely focused on the motivation of equity incentive plans.Executives’equity incentive plans awarding a certain number of shares (stocks or stock options) to executives have gradually become a fashion incentive scheme in the capital markets in China. Called the "golden handcuffs", equity incentive scheme has won great success in the western corporations especially in the United States. After the scandals of Enron, Yili and AIG, more scholars realize that equity incentive plans include widely non-incentive motivations. With shorter vesting period, lower strike price, and easier satisfied vesting conditions, the drafts of equity incentive plans declared by the non-financial industries of A-share markets fill in non-incentive characteristics. Moreover, equity incentive seems to be a tool of large shareholder to redeem top managers. Therefore, there are several types of motivations in the plans of equity incentive. It stimulates me to think about:how to identify the type of motivation of equity incentive plans? Whether the relationship between equity incentive and investment decision-making is different based on different motivations? How the executives’equity incentive with different motivations influences on corporate investment decision-making?We believe that the study of these topics will promote to understand the equity incentive mechanism, help investors identify the type of motivation of equity incentive plans, deepen the awareness of this mechanism, and estimate firm value correctly. Meanwhile, these results perhaps provide valuable references for regulators and supervisors when guide the related regulations practice, and pave the healthy way to develop the equity incentive scheme in China.Focusing on the motivation of equity incentive plans of listed companies in China, this dissertation puts forward the research framework of "motivation, mediation path, and results", and compares three types of motivations to investment decisions. Trying to solve the mediation path between equity incentive and investment decisions, I explain the different influence under different types of motivations of equity incentive on investment efficiency.Firstly, based on the optimal contract of equity incentive motivation theory, management power theory and the theory of major shareholders to redemption, I design several division methods of the equity incentive plans. Comprehensive consideration of the exercise price, vesting conditions both in the draft plans and the corporate governance structure, I choose 475 listed non-financial industry companies the first time to launch equity incentive plans draft from 2006 to 2013, and divide the basic samples into 234 incentive-based motivation type,127 redemption-based motivation type and 114 welfare-based motivation type eventually.Secondly, with the distinction of three types of motivations, this dissertation compares the enterprise investment preference, and tests the different influence between two types of non-incentive motivations of equity incentive and corporate investment by the benefits of major shareholders or top managers. These results show that:(1) three types of motivations of equity incentives lead to different enterprises’investment orientation. The enterprises with redemption-based motivation of equity incentive plans are more inclined to external mergers and acquisitions, welfare-based motivation type is more likely to internal investment, and incentive-based motivation type prefers to risk investment. (2) Influencing the enterprise investment preference, non-incentive motivations of equity incentive realizes goals of improving benefits of insiders. The type of redemption-based motivation triggered by external of enterprise mergers and acquisitions increase the tunneling behavior of major shareholders, but welfare-based motivation type of equity incentive results enterprises’ internal investment preference to improve the perks level of top managers.Finally, this dissertation tests the different influence of executives’equity incentive through a mediation path eventually leading to corporate capital allocation efficiency and future firm value. These results show that the inefficiency investment may be restrained for the incentive-based type motivation of equity incentive stimulating executives to take risks, the deterioration of excessive investment is increased by tunneling behavior of large shareholders under the type of redemption-based motivation of equity incentive, and the welfare-based motivation type of equity incentive undermines firm investment inefficiency and firm value because executives pursue perks on-the-job.