The Effect Of Equity Incentives:Analysis Based On Corporate Financing And Risk Perspectives

The cases of equity incentives in Chinese listed companies have been increasing substantially in recent years,and the effects of executive equity incentives have become hot issues in the theory and practice fields.Executive equity incentives have the butterfly effect,and influence the agency problems between shareholders and creditors,as well as that between shareholders and managers.The former will be reflected in the corporate debt financing situations,and the latter can be reflected in the changes of corporate risk characteristics.Using a sample of Chinese A-share listed firms,and taking into account the agency problems between shareholders,creditors and managers in companies which implement equity incentives,this paper investigates the effects of equity incentives from the perspectives of company’s debt financing situations and risk characteristics,and reveals the potential risks such as financing risk and stock price crash risk in these companies.Corporate cash holdings reflect the characteristics of corporate operating behaviors and the changes of external investment and financing environment.Therefore,this paper first studies the impact of equity incentives on corporate cash holdings.The empirical results show that,companies which implement equity incentives have lower cash holdings,and the value of cash holdings for these companies is also lower.This paper also finds that compared with the state-owned enterprises,the value of cash holdings is higher in the non-state-owned enterprises that implement equity incentives.This phenomenon shows that costly external finance effect gets enhanced among the non-state-owned enterprises.The conclusions indirectly show that,equity incentives have a negative impact on the Chinese firms’financial constraints.Secondly,using a variety of measurement indices of financial constraints comprehensively,this paper analyzes and examines the impact of equity incentives on the firms’ financial constraints directly and systematically.The empirical results show that,equity incentives have a negative impact on the Chinese firms’ financial constraints,but the impact has a threshold effect.Furthermore,there exists an asymmetric influence on the financial constraints of enterprises which have different property rights.Thirdly,from the perspective of financing pricing,this paper investigates the impact of executive equity incentives on the pricing of corporate bonds.The results show that,the equity incentives intensity is positively associated with the credit spread of corporate bonds,and this relationship increases with the improvement of product market competition and the control rights of large shareholders.Lastly,from the perspective of the agency problems between shareholders and managers,this paper investigates the impact of equity incentives on the corporate risk taking and stock price crash risk.The results show that,the equity incentives level is positively associated with the corporate risk taking,and the vega of stock options has a positive effect on risk taking,while the delta does not reflect a risk aversion effect.This paper also finds that,the equity incentives level is positively associated with stock price crash risk,and this relationship decreases with the improvement of corporate growth and the control rights of large shareholders.Furthermore,the positive relationship between equity incentives level and stock price crash risk is more pronounced in the bull market than in the bear market.And the non-incentive type is more likely to increase the stock price crash risk than the incentive type.This paper puts forward some relevant suggestions on the changes of corporate potential risks after the implementation of equity incentives,and expands the research perspectives of the effect of equity incentives from the view of creditors,and has important practical implications for the implementation of firms’ equity incentive plans and their investment and financing decisions.This paper not only deepens the understanding of the economic consequences of equity incentives,but also provides more detailed empirical evidences for managerial entrenchment tendency and large shareholder governance effect.Meanwhile,this paper also has important implications for how regulators regulating the development of equity incentives,protecting the interests of investors and maintaining the stability of capital market.