Research On The Valuation Model And Incentive Effects Of Performance-vested Executive Stock Option In Listed Companies

With the popularity of joint-stock companies,the separation of corporate ownership and operating rights has become one of the characteristics of modern companies,especially listed companies.The organizational form of separation of powers provides more momentum,broader financing space,more professional management talent,and more efficient organizational structure for the company's development,but it also sets new obstacles for the modern company's operations–“the issue with managers”.The owners of the company have tried various methods to solve or alleviate the “issue with managers” and granting managers the company's stock options is also one of them.This new type of salary system originated in the United States has become a hot topic of discussion in the practice and theoretical circles along with the process of economic globalization.The actual incentives and pricing of stock options have also become the focus of relevant discussions.As China's securities market continues to mature,the concept of derivatives continues to spread,the overall economy continues to grow,the number of joint-stock companies increases,and the concept of corporate governance advances,the previous single fixed compensation model could no longer meet the needs for development of Chinese companies,especially listed companies as well as the interests of company shareholders,and stock options have attracted the attention of many corporate owners.As a form of remuneration,great progress has been have made in the development of stock options in China.Before 2005,there were a large number of non-tradable shares in China's listed companies.In terms of stock liquidity and stock price information value,listed companies at that time did not have the objective conditions for implementing the stock option incentive plan.In 2006,China began a comprehensive equity reformto substantially reduce non-tradable shares,which has improved the vitality of the stock market and increased the company's valuable information content in stock prices,providing a solid basis and market environment for the implementation of equity incentive plans.In fact,the number of companies that have implemented stock option incentives in China since 2006 has continued to increase.II Among them,the stock option granted to the company's senior management personnel with the company's financial performance requirements is the most common form of equity incentive in listed companies in China.Although performance-constrain-vested senior management optionsexecutive stock options are not new terms in China,performance-constrain-vested senior management optionsexecutive stock options,as an incentive compensation method,still have problems such as unpredictability of incentives,difficulty in recognition of incentive costs,ambiguous incentive effects,and pricing difficulties.Thus,it has not been widely used within listed companies in China.This paper focuses on performance-constrain-vested senior management optionsexecutive stock options.First,it conducts in-depth research on pricing methods and improves existing models.Then,it proposes an objective pricing framework for senior management optionsexecutive stock options including corporate financial performance constraints,lock-in periods,turnover shocks,and incomplete hedges of transactions,and a subjective pricing framework that includes the risk utility of the holders.Combining the two frameworks,this paper presents the analytical pricing models of the subjective value and objective value of ordinary American options,premium options and buyout options.Meanwhile,in order to provide more diversified and flexible incentives,this paper also designs and improves three stock options,namely: capped options,performance-dependent options,and index options,and presents their analytical pricing models.Then the paper analyzes the value sensitivity and incentive effects of different types of performance-constrain-vested executives on the basis of the pricing model.Finally,this paper takes China's A-share listed company as a sample toempirically examine the actual incentive effect of performance-constrain-vested senior executive options and its impact on the company's risk characteristics.The main content of this article is as follows:Chapter One is the introduction.This chapter explains and elaborates on the structure of the entire paper from four aspects,namely,the research background and research significance,basic concepts,literature review,research problems and main arguments,research methods and innovations,laying the framework structure for the full text so as to guide and clarify the core concepts of the full text.Chapter Two is the theoretical basis,laying a theoretical foundation for subsequent pricing model and empirical test.From the aspects of principal-agent,human resources and management behavior theory,this paper analyzes the incentive effects that performance-constrain-vested executives should have.This paper expounds the previous methods of pricing of senior management optionsexecutive stock options and compares the two mainstream non-performance-constrain-vested methods of pricing senior executive options.Chapter Three talks about the performance constrained executive options pricing model.Firstly,it analyzes the characteristics of the options that have a key influence on the value of executive options under the performance constraints.Based on the previous methods,suitable mathematical expressions are found out for different characteristics and performs mathematical modeling.Then,taking the ordinary American option as an example,the subjective and objective value pricing model of the corresponding performance-constrain-vested senior executive option is deduced.Two new options—capped options and performance-dependent options—are designed to improve index options and derive their subjective values and objective price analysis pricing models for premium options and buyout options.Chapter Four is a comparative analysis of the value and parameter sensitivity of executives with performance constraints.This chapter mainly examines the value sensitivity of different types of performance-constrain-vested executives' options by changing the key parameter values,compares the different types of performance-constrain-vested executives' options for different simulation environments,and analyzes which options are more appropriate under different conditions.Chapter Five is an analysis of executive incentives for performance constraints.In addition to the traditional Delta coefficient and Vega coefficient,this paper also designs the Eta coefficient and b Vega coefficient to represent the partial derivative of the option value to the performance level and the beta coefficient.The theoretical incentive effects of different types of performance-constrain-vested senior management optionsexecutive stock options are compared at three levels: stock price,company financial performance and corporate risk status.Chapter Six is an empirical test of the performance of share prices and performance incentives for performance-constrain-vested senior management optionsexecutive stock options.This chapter firstly combines the theoretical research contents of Chapters Two and Six with the actual situation in China and analyzes the actual incentive effects of performance-bound executives' options on the stock priceand financial performance of listed companies in China.And,the proposed hypothesis is verified using multiple regression models.Chapter Seven is an empirical test of the effect of performance constraints on senior executives' options on the risk characteristics of listed companies.Similarly,this chapter combines the theoretical research contents of Chapter Two and Chapter Six with the actual situation in China toanalyze the influence of performance-constrain-vested senior management optionsexecutive stock options on company risk characteristics.The CAPM model based on the dynamic DCC model is adopted to decompose corporate risk into systematic risk and non-systematic risk.And additionally,share price crash risk is introduced to empirically examine the effects of performance-constrain-vested senior management optionsexecutive stock options on listed companies' risk from three levels.Starting from the two dimensions of option holder recognition and the actual cost of an enterprise,this paper studies the subjective value and objective value expression of the senior management optionsexecutive stock options under various performance constraints and analyzes the parameter sensitivity and incentive effect of different types of options,providing a reference for companies to accurately measure the value of senior management optionsexecutive stock options,determine the actual incentive effect of options and select the appropriate type of options.