Study On The Relationship Between Equity Incentive And Internal Long-term Investment Decision

In many countries, equity incentive has been used in practice Currently. What is the implementation effect of the the enterprise equity incentive? People pay much attention to this problem. There has been many researches on this problem. But these researches mostly concentrates on the relationship between equity incentive and the enterprise performance.The index of enterprise performance has many disadvantages. First, the index of enterprise performance has short term and hysteretic nature. Most studies use the indexes of enterprise profit, the return on assets, the total asset returns, total profit and so on. These indexes have short term and hysteretic nature. Because these indexes only represent the historical enterprise operating conditions. They can not reflect the future operation conditions and the prospects. Second, the enterprise performance indexes have indirection nature. The aim of introducing the stock ownership incentive is to restrict the behavior of managers effectively and make sure that their decision is benefit for the development of companies. So researching the relationship between equity incentive and the enterprise performance is to research the relationship between equity incentive and investment decision indirectly. Researching the relationship between equity incentive and the enterprise performance has indirection nature. So using the enterprise performance as measure of the equity incentive has indirection.The investment decision of the enterprise is related to its value and its future development. And also the investment decision reflect the managers behavior. Using the investment behavior can overcome the limitations which is related above. Consequently, this paper will study the relation between equity incentive and investment decision in order to measure the effect of equity incentive and offer important advice for equity incentive.The researches on the relationship between equity incentive and investment decision can be divided into two categories. The hypothesis of different articles is also different. Some articles think the relation between equity incentive and investment decision is plus relationship. Other articles think the relation between equity incentive and investment decision is negetive relationship. What is the relationship between equity incentive and investment decision on earth? We need to analysis the reasons of the two inefficient investment and the actual situations in China.Firstly, this article analysis the reasons of the two inefficient investment. Secondly, this articles analysis the relationship between equity incentive and investment decision, and then proposes the hypothesis in connection with the actual situation in our country under the theory of commission-surrogate. Lastly, this article proposes the hypothesis directly and then collect data in order to confirm the hypothesis.This paper researches the relationship between equity incentive and investment decision by collecting the data of state-owned listed companies from the year of 2006 to 2008. The research indicates that: the investment decision is inter related to the cash-flow in the state-owned listed companies;there is excessive investment in the state-owned listed companies. But the equity incentive does not work effectively because of the specific situation in our state-owned listed companies. And the system of equity incentive is not perfect yet now.