Ownership Incentives,External Restrictions And Manager's Behavior

The separation of the ownership and the management is one of the important characters of modern companies. It is associated with the origin, development and improvement of the manager system. The experience of the manager system, "Manager Revolution" and "Owner's Wakeup" shows the counter-restriction between the ownership and the management. How to establish the efficient manager incentive and restriction mechanisms becomes the focus on corporate governance.The benefit conflicts between the principal and the agent come from the "divorce" of the ownership and the management, so one of the resolutions for this problem is "remarry" the ownership and the management, i.e. making the managers become the owners. The popular way is to grant stock options to the management. The stock options boosted the America's new economy, but the Enron scandal reminds us that options may bring serious adverse effect.While granting managers options as "carrot", external restrictions as "stick" are necessary. The monitoring of the large shareholders, the takeover threat of the potential investors and the liquidation restriction of creditors are important to restrict manager behaviors and improve the firm value. Especially, we take China's realistic circs into the analysis, and we get some significative results.Based on the theories and foreign practices of the corporate governance, we examine the incentive and monitoring to the managers in China's State-Owned Enterprises. We find the lack of the principals and agents, and the existance of "soft" external restrictions. To remedy these problems, we give some advices.