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A Listed Company Implementation Of Equity Incentive Impact Studies On Performance

Posted on:2009-09-12Degree:MasterType:Thesis
Country:ChinaCandidate:J D DaiFull Text:PDF
GTID:2199360272989050Subject:Business Administration
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After the adoption of the "Regulation about the Equity Incentive Scheme of the Listed Companies (trial implementation)", the new "Company Law" as well as the new "Securities Law" on 1st January 2006, many local listed companies have brought forward their own equity incentive scheme. From midyear of 2005 to 15th August 2008, 118 companies have declared altogether 127 schemes, which lead to extensive discussion while all of them enjoy different features.Based on the theory of equity incentive, the current situation of equity incentive in China and the relevant terms in the new "China Accounting Standards (CAS)", this article mainly analyzes the equity incentive schemes of those listed companies from the following two aspects:1) Analysis on the short-term impact on listed companies' performance of the equity incentive. From the case of Hainan Haiyao(000566.SZ) and Yili Group (600887.SH), conclusion could be drawn that the current CAS term regarding option expense causes drop in the listed companies' short-term performance under the circumstance of present Chinese capital market.2) Analysis on the relativity between equity incentive and earnings management in listed companies.With Dechow & Dichey accounting model and 111 listed companies' case, it is analyzed whether the implementation of equity incentive would cause abnormal manipulation of company's performance in order to achieve more interests from equity incentive scheme. Analysis shows that listed companies tend to have more obvious earnings management in the latest financial report before declaring their equity incentive schemes, which resulted in a reduce of company's profit. While the exercise price of equity incentive is decided by the share price before declaration of the incentive scheme, the management of listed company could acquire more profits through earnings management and reduction of share price, which would lead to a drop of excise price of futures or restriction of the transfer price of shares.The earnings management before declaration of equity incentive scheme would result in short-term fluctuation of the listed companies' performance. Together with equity incentive expense, the performance of listed companies would endure tremendous fluctuation around the declaration time of incentive scheme. Thus, the rational judgement of the investors is influenced.
Keywords/Search Tags:Equity Incentive, Equity Incentive Expense, Earnings Management
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