Research On Effectiveness Of Top-Management Stock Option Incentive On Listed Companies In China

Stock Option Incentive is a modern long-term incentive system which is used to solve the basic principal-agent relationship, relationship of shareholders and managements, in modern corporate. Along with development of marketing economy, continually technology innovation and development of capital market, the incentive method is regarded by both theoretical and practical scholars in China.Since second half year of 2005, China has reformed non-tradable share problem in listed companies, and promulgated or revised a series of laws and regulations, which solved systematic and legal barriers for implementing real stock option incentives.Most research on top-management stock-based incentives and company performance as well as shareholders'wealth before is simple case qualitative analysis, or empirical analysis based on data of trial companies under non-comprehensive systematic systems. Reform on non-tradable share problem in China makes capital market entering a new historical time and creates a new research need on top-management stock-based incentives.Selecting listed companies implementing stock-based compensation as objects, this study aims to analyze the effectiveness of stock option incentives, elements influencing the efficiency, as well as gives some constructive suggestions to realistic environmental and systematic issues accruing during stock option incentive practice of listed companies on post non-tradable share times in China.The study applies comprehensive research approach combining empirical approach and realistic issues analysis, combining qualitative and quantitative approach, including theoretical, literature and realistic condition analysis. EVIEWS statistic analyzing software and EXCEL Office software are used to record, computer data from WIND Securities Information Database, and to regress the Model and test theoretic hypotheses. The dissertation is comprised of three section including ten chapters.The first section gives the study problem, including through chapter 1 to chapter 4.Chapter 1 is Introduction, which introduces research background, meaning, target, logical sequence, approach and instruments, as well as research innovation.Chapter 2 discusses and integratively analyzes theories interpreting stock option compensation incentives, including Principal-Agent Theory, Human Capital Theory, Management Motivation Theory, and Black-Scholes Option Pricing Model.Chapter 3 reviews literatures relating to research on stock option incentives and top-management incentive at home and abroad, in turn induces blind spot on stock option incentive research needs to study and resolve in current listed companies in China. Chapter 4 introduces and discusses evolvement of stock-based compensation incentive practice in China, in turn summarizes urgent systematic and environmental issues listed companies faced.The second section analyzes and researches the study problem, including through chapter 5 to chapter 9.Based on retrospection, summary and induction through chapter 2 to 4, Chapter 5 gives an integrated research framework on effectiveness of stock option incentive on listed companies in China, including three successive levels of empirical analysis sub-framework and policies research sub-framework.Chapter 6 is the first empirical research sub-framework level, which is analyzing relationship of stock option, market risk, nature of share and top-management compensation summation of salary and bonus on listed companies in China. Conclusions that market performance, accounting performance has significant positive relationship with top-management compensation summation of salary and bonus and etc are proved. Nature of share of listed companies in China has significant influence on top-management compensation summation of salary and bonus, in turn compensation of top-management of state-owned listed companies is significantly higher.Based on conclusions of chapter 6, chapter 7 make further empirical analysis on pay-performance sensitivity of stock option compensation and ratio of stock option compensation and cash compensation of top-management on listed companies in China. Growth opportunity, cash flow, institutional investors' holding concentration, financial leverage, share concentration are proved elements having significant influencing effectiveness of stock option incentives on listed companies in China. Nature of share of listed companies has significant influence on PPS of stock option, and state-owned listed companies are inclined to pay top-management cash compensation comparing with private listed companies.Chapter 8 is the third level empirical research basing on conclusions of the above two chapters, which analyze specific influence of nature of share on stock option policy design of listed companies. It proved that nature of share has significant influence on award ratio of stock option as well as exercising validity period. state-owned listed companies has significantly lower award ratio and longer exercising validity period comparing with private listed companies.Chapter 9 gives realistic policies suggestions from accounting, tax and supervision aspects, aims at unpredicted problems and operational issues occurring during stock option practicing process of listed companies in post non-tradable share reform times in China.The third section including chapter 10 gives conclusions, innovations and contributions of the study, as well as discusses study limitation and suggestion for future study.Contributions of this dissertation are as followings:Firstly, research framework of effectiveness stock option incentive on listed companies in China is given, based on evolution process and present condition of stock option plan. The framework includes empirical analysis (incentive efficiency test) and realistic policies suggestions (systematic basis induction), which forms an organic research on effectiveness stock option incentive on listed companies in China.Secondly, measurement and test model whose dependent variables are respectively stock option pay-performance sensitivity and ratio of stock option incentives to cash compensation are given to analyse efficiency of stock option incentive on listed companies in China. Important factors influencing efficiency of stock option incentive on listed companies in China are put forward and tested statistically significant.Thirdly, nature of share of listed companies in China is proven to be an important factor influencing stock option incentive plan, which significantly affects relative indexes of stock option plan. Futher segmention to nature of share of listed companies in China is also proven to affects indexes of stock option plan tested by models.Fourthly, stock option plan on listed companies in China is found to have double effects on top-management, including both incentives effect and compensation effect.Last, suggestions on accounting, tax and supervision policies upon stock option plan in China are concluded, including how to avoid adjusting profit by using accouting measure, how to avoid repeat taxation, as well as how to improve supervision efficiency.