Research On Equity Incentive Effect In Listed Company

Whether or not equity incentive has lived up to the theoretical expectations of long-term incentive has attracted wide attentions in both academic and practical area in recent years. Whether or not the senior executives can be incented to distributing resources into innovation, has became an important evaluation standa RD of the efficiency of equity incentive. In the process of China’s market economy transition, concentrated equity structure in Chinese listed companies is different from the dispersed equity structure adopted by American companies. In this research, based on institutional background of ―single-large shareholder‖ in Chinese listed companies and from the perspective of R&D investment behavior, the equity incentive effect will be investigated in the purpose of providing theoretical reference, as well as experimental evidences of emerging market economy countries.On the basis of literature review, it is found that domestic researches on equity incentive effective from the view of R&D investment measure the degree of equity incentive and investigate the relationship between equity incentive and aggregate R&D investment by using shareholding ratio of senior executives or proportion of equity incentive. The followings of previous researches await further improvement: firstly, obstructions exist in measurement of degree of equity incentive when the shareholding ratio of senior executives is adopted, resulting in failure of revealing adaptability of equity incentive to the capital market and it may be difficult to accurately display the impact of equity incentive on senior executives; secondly, new Accounting Standards for Business Enterprises have clearly pointed out that the expenditures for R&D should be respectively determined and calculated. However, previous studies have not determine whether there is difference between impact imposed by equity incentive on expensing and capitalize R&D investment; furthermore, the existing researches focus on the impact of equity incentive on the level of R&D investment, but fail to point out the contribution of changing in R&D investment level to the corporate performance; lastly, it is hardly to find literature in the difference of equity incentive and equity structure institutional background between Chinese listed companies and American listed companies.This research contends that as a long-term incentive mechanism, the equity incentive will not only impact on R&D investment decision-making behaviors of senior executives, but also impacts on the execution of R&D investment decisions, further affects the firm performance; simultaneously, in Chinese listed companies, working of equity incentive effect is affected by control rights of large shareholders, whose power are generally overwhelming. Along with implementation of equity incentive, the ―conflict‖ between private gain motivation of large shareholder and equity incentive,has reduced the positive effect of equity incentive on the corporate performance and R&D investment. There is discrepancy of Market Mechanism of incenting and employing of top management in state-owned and private companies. Meanwhile, political promotion incentive and equity incentive of senior executives in state-owned companies are mutually replaced. The equity incentive may exert different impacts on manager’s behaviors. As a result, in this research, the proportion of equity salary in total salary will be employed to measure the degree of equity incentive, and R&D investment behavior is ―bridged‖ between equity inventive and corporate performance, and mediating variable model thought is referred to explore path dependence of equity incentive effect.The listed companies with implementation of equity incentive and disclosure of R&D investment from 2007 to 2013 are adopted as the research objects in this research. The direct effect of equity incentive is investigated firstly. The research results show that there is significant positive correlation between equity incentive and firm performance, in other words, implementation of equity incentive policy will improve corporate performance including accounting and market performance; the conflict between control rights of large shareholders may reduce the enhancing effect of equity incentive on the corporate performance, and the equity incentive executed by companies with lower control degree of large shareholders can improve the firm performance, and there is no significant correlation between equity incentive executed by companies with high control degree of large shareholders and the firm performance; difference in ―conflict‖ of large shareholder control rights and equity incentive exists in the state-owned companies and private companies, and there is distinct ―conflict‖ between control rights of large shareholders and equity incentive in the private companies, and no obvious ―conflict‖ is detected between control rights of large shareholders and equity incentive in the state-owned companies.Indirect effect of equity incentive is studies at the second place in this research. The study finds that equity incentive is positively correlated to the aggregate R&D investment. Expensing accounts for 80% of aggregate R&D investment and the rest 20% is for capitalize. The equity incentive can greatly promote the level of expenditure and capital R&D investment. In consideration of the endogenous relationship between equity incentive and R&D investment, a positive correlation still exists between expensing R&D investment and equity incentive, and such correlation is no longer found between capitalize R&D investment and equity incentive; the conflict between control rights of large shareholders can reduce enhancing effect of equity incentive on R&D investment, and the equity incentive executed by companies with lower control degree of large shareholders is positively correlated to R&D investment, and there is no significant correlation between equity incentive executed by companies with high control degree of large shareholders and the corporate performance; difference in ―conflict‖ of large shareholder control rights and equity incentive exists between the state-owned companies and private companies, and there is distinct ―conflict‖ between control rights of large shareholders and equity incentive in the private companies, and no obvious ―conflict‖ is detected between control rights of large shareholders and equity incentive in state-owned companies.The meditating transmission effect of R&D investment between equity incentive and corporate performance will be studied next. The study results suggest that R&D investment is positively correlated to current and next two periods of corporate performance, in other wo RDs, increased R&D investment will bring about significant improvement of the corporate performance, and the enhancing effect of equity incentive on the corporate performance is partially transmitted; in the aspect of internal constitution of R&D investment, both expenditure and capital R&D investment is positively correlated to the corporate performance. In combination with enhancing effect of equity incentive on R&D investment, expenditure R&D investment is considered to exert a mediating transmission effect on equity incentive and the corporate performance, but mediating transmission of capital R&D investment is not significant; ―conflict‖ between control rights of large shareholders and equity incentive may influence the mediating transmission effect of R&D investment, and R&D investment of companies with low control degree of large shareholders can exert its mediating transmission effect, but the companies with high control degree of large shareholders fail; compared with the stat-owned companies, the private companies possess R&D investment which has stronger mediating transmission effect and is acceptable to the capital market. During evaluation of the market performance, it is found that the impact of private company’s R&D investment on the market performance is nearly 3 times higher than that of stateowned company, and the impact of expenditure R&D investment is mostly 9 times higher than that of state-owned companies.Lastly, this research studies the policy proposals to enhance the equity incentive effect from the perspective of optimizing the contract design of equity incentive and improving corporate governance. The study indicates that optimization of contract design of equity incentive and clear responsibility of managers in technical innovation can improve manager’s initiative to invest in R&D and increase execution efficiency; reduction of equity concentration of listed companies, formation of balanced equity structure, clarification of property rights delimitation, solution of control issues caused by ―insiders‖ in the state-owned companies can create favorable governance circumstance for working of equity incentive effect; development of professional manager market, establishment and consummation of selection and recruitment mechanism of manager market are effective ways to give full play to governance function of equity incentive.