The Empirical Study Of The Performance Of Equity Incentive Mechanism

As an effective long-run incentive mechanism tackling with all kinds of principal-agent problems in companies, equity incentive mechanism has been widely used in modern western companies since 1980's last century and won prominent success. Since 1990's, domestic researchers and companies began to investigate this kind of incentive mechanism and put it into practical application. Meanwhile, there have been a lot of articles on how to design, improve and extend the implement of equity incentive mechanism in literature. However, considering the present development stage of Chinese economy, one may doubt this kind of incentive mechanism may bring the same satisfying result in Chinese practical environment just as it did in its western application. As we know, although equity incentive mechanism theory has been well developed, its application situations in China would be quite different from its western counterpart.The purpose of this paper is trying to reveal the present application performance of equity incentive mechanism in China through empirical research. And based on this, we go further on to analyze the underlying reasons of its present performance. After introducing the basic concepts and fundamental principles of equity incentive mechanism theory, we pick up all A-share companies in Shanghai Stock market which have adopted equity incentive mechanism as the basic sample. By using the method of major component analysis and classifying the different proportion holding intervals among managers and the types of companies with different natures of equity, we get the composite performance index of these companies and hence have an empirical regression to study the relationship between equity incentive and those companies' performance.Based on our empirical study, we find that equity incentive mechanism has not achieved its original objectives that it may could. The major reason for this may due to the shortness of the corresponding necessary conditions of its implementation in China. For example, there isn't any efficient intermediate market; the underdevelopment of monitoring rules and institutional regulations; theincompleteness of corporate governance structure and the weakness of Chinese capital market. Among these, the weakness of the capital market has significantly restricted the probable influence of the implementation of equity incentive mechanism. Actually, to extend the implement of equity incentive mechanism may have terrible negative effects on Chinese capital market.This paper is composed of five chapters and logically can be divided into three parts. In the firs part, we have a comprehensive review of the literature in this field and go over the fundamental theory of equity incentive mechanism with its current application status and characteristics in China. The performance-evaluation model and the empirical study are given in the second part. In another word, we carry out our empirical study of the post-implementation effects of these companies based on our performance-evaluation model. We conclude in the third (last) part. In this part, we also do some further theoretical research in combination with the empirical result obtained.