Research On The Agency Problem In Exercise Price Setting Of Stock Option Incentive

In 2006,"the Administrative Measures on Stock Incentives by Listed Companies(Provisional)" was issued,which officially opened the prelude of the listed company equity incentive system reform.The number of companies announced or implemented the equity incentive plan continues to increase.The present situation of equity incentive implementation displays that the equity incentive plans launched by listed companies of our country is counter-cyclical,there are less listed companies to launch equity incentive plans when the stock market boom,and there are more listed companies to launch equity incentive plans when the stock market downturn,there is an obvious phenomenon of timing.Opportunistic timing will not only damage the interests of shareholders and increase the cost of equity capital,also will make the effect of equity incentive diminished.Therefore,a systematic research on opportunistic timing in the equity incentive of listed company and how opportunistic timing influence the equity incentive effect,has very important practical significance.A series of studies in foreign countries have focused on opportunistic timing in the process of the stock option grant,however,the domestic related research is less because of the equity incentive practice in the domestic started relatively late.Whether do the different institutions and governance background in China,as well as the different requirements compared with the United States on the pricing basis of exercise price and lock-up period and so on lead to opportunism timing behavior in equity incentive of listed company?And what kind of opportunistic timing behavior will be led to?What kind of company governance mechanism will affect the opportunistic timing of equity incentive?A research based on China’s institutional background is required.Using China’s listed companies have implemented the equity incentive plan since the reform of the equity incentive system in 2006 to the end of 2015 as the research object,this paper theoretically and empirically research on the existence,manifestation,interrelationship and influencing factors of agency problems in the process of exercise price setting in the equity incentive.First,based on background of China’s equity incentive system,this paper study on the design characteristics and implementation status of stock option incentive scheme implemented since the reform of equity incentive in 2006;Then,this paper study the existence,manifestation of opportunistic behavior during the strike prices setting in stock option incentive,and match problem of information disclosure and earnings management using large sample empirical analysis;Then,using the empirical data of listed companies in our country since 2006 the equity incentive system reform,this paper empirically analysis the internal and external influencing factors of opportunistic strike prices setting behavior of company;Finally,according to those results,this paper study how to control opportunistic strike prices setting behavior,and perfect the equity incentive system in China.In this paper,the main research contents and innovative work is as follows:(1)This paper study the representation and correlation of the agency problem in the initial setting of strike prices in stock option incentive.Through the analysis of the distribution characteristics of the cumulative abnormal returns and the behaviors of information disclosure and earnings management around the equity incentive plan draft announced,this paper finds that there are three forms of agency problem in the initial setting of strike prices in stock option incentive which are opportunistic timing of announcement of the equity incentive plan draft,opportunistic timing of selective information disclosure,strategic earnings management.In the process of equity incentive award,the company’s managers will consciously announce the draft of equity incentive plan when their company’s share price is lower in order to minimize the exercise price so as to maximize their expectant benefit from equity incentive,and the company’s managers will implement opportunistic timing of selective information disclosure around the equity incentive plan draft announced,at the same time,in order to coordinate with opportunistic timing,the company’s managers will also implement strategic earnings management around the equity incentive plan draft launched.these finds help to deepen and systemize the understanding of agency problems in the initial setting of the right price.(2)This paper study the influence factors of agency problem in initial setting of the stock option incentive strike prices.From three dimensions of the basic key elements of incentive contracts,the corporate governance mechanism and external system environment,the research baced on large samples find that:First,the incentive strength and valid period is the factors of equity incentive contract which influence opportunistic timing in the stage of stock option award.The degree of opportunistic timing in the stage of stock option award will enhance as the overall incentive intensity as well as the executive incentive intensity set in the equity incentive scheme is heightened,at the same time,the degree of opportunistic timing in the stage of stock option award will be more serious as the exercise waiting period lengthen,and the degree of opportunistic timing in the stage of stock option award will be weakened as the validity period of exercise lengthen.Second,the property rights nature and the independence of board is important corporate governance factors which affect opportunistic timing in the stage of stock option award.Relative to the non-state-owned holding companies,the degree of opportunistic timing implemented by managers in state-owned holding company is more serious;The stronger the independence of board is,the smaller the degree of opportunistic timing implemented by company’s managers.Third,the degree of marketization is the external environmental factors which affect opportunistic timing in the stage of stock option award.Relative to the company where the degree of marketization is higher,the degree of opportunistic timing implemented by managers in the company where the degree of marketization is lower will be more serious.Lower degree of marketization will not only strengthen the positive correlation between state-owned holding and the degree of opportunistic timing,but also reinforce the negative correlation between the independence of the board and the degree of opportunistic timing,at the same time,lower degree of marketization will also strengthen the positive correlation between the equity incentive intensity and the degree of opportunistic timing.The results of this study provide a way of thinking about the agency problem of in initial setting of the exercise price from multi-dimension and multi-level governance.(3)This paper study the representation and correlation of the agency problem in the following adjustment of exercise price after the stock option incentive was awarded.After expounding the relationship between stock dividend distribution and the exercise price adjustment through theoretical analysis,this paper study agency problem in the subsequent adjustment of exercise price using stock dividend distribution as substitution variables and find that:in order to further reduce the exercise price,and increase the shares which stock option incentive are awarded,company’s managers will allocate opportunisticly stock dividends in order to maximize prospective earnings from stock option plan in the implementation of stock option incentive plan,and the higher the intensity of stock options incentive plan is,the higher the level of stock dividend distribution is,and the greater the subsequent adjustment opportunisticly of the exercise prices is.The results show that the opportunism of stock dividend distribution is the major form of agency problems in subsequent adjustment of the exercise price,which can extend the understanding of the relationship between the equity incentive and dividend distribution.(4)This paper study the influence factors of the agency problem in the subsequent adjustment of the exercise price of stock option incentives.The research shows that:the higher the concentration of ownership is,the weaker the degree of opportunistic adjustment of exercise price implemented by managers is,and relative to the non-state-owned holding companies,the degree of opportunistic adjustment of exercise price implemented by managers in state-owned holding company is more serious;With the increase of managerial shareholding ratio,the degree of opportunistic subsequent adjustment of exercise price will be greater;The higher the degree of marketization is,the lower the degree of opportunistic subsequent adjustment of exercise price is.However,there is no correlation between the proportion of independent directors and the degree of opportunistic subsequent adjustment of exercise price,and duality between the chairman and general manager has no effect on the degree of opportunistic subsequent adjustment of exercise price.The results of this study may provide empirical support for governing the agency problems in the subsequent adjustment of the exercise price.(5)The paper study the governance strategy for agency problems in the process of exercise price setting of stock option incentives.Research results show that in order to govern agency problems in the process of exercise price setting,it is very important to optimize basic elements combination of incentive contract so as to improve the effectiveness of stock option incentive contract designed,to establish special information disclosure system and strengthen strategic earnings management monitoring,to strengthen the independence of the board of directors so that the supervision responsibility of the special committee of board is practicable,to optimize ownership structure and deepen the reform of mixed ownership of the state-owned holding company,to continue to promote market-oriented reform so as to optimize the external environment of corporate governance.