A Study On The Impact Of Stock Incentives On Corporate Performance Of China 's Listed Companies

As a long-term incentive equity incentive mechanism helps to solve the business principal-agent problem. By attracting and retaining qualified personnel, as well as combining the interests of managers and shareholders, equity incentive mechanism motivates executives and key employees to create value for the enterprise. Equity incentive mechanism began to develop rapidly in the 1990 s in China. As China’s capital markets continue to develop, equity incentive laws and regulations are increasingly improved. Since China’s GEM market was set up in 2009, the stock incentive system has been more widely used, but there has also been some negative phenomena. GEM listed companies with high-growth, high-risk characteristics make the equity incentive mechanism can be widely used, but if it works well needs to be further studied.Research objectives of this paper is to discuss if the implementation of equity incentive mechanism enhances the performance of GEM companies significantly. By using empirical analysis we study the effects of the elements of the equity incentive mechanism on the corporate performance. First, we have summarized foreign and domestic literature on the relationship between stock incentive and firm performance. Second, we consider the specific elements of the equity incentive plan, and propose hypotheses relating to the effects of incentive plan proportion, premium and the authorization term on corporate performance.Using the stock incentive data of GEM listed companies, we make the horizontal and longitudinal comparison of corporate performance analysis, as well as the mode comparison. The results of t-test indicates that: Comparing the implementation of the company and not implementing equity incentive plan, the implementation of equity incentive plan increases the company’s profitability and shareholder profitability. The longitudinal comparison proves that the company’s equity incentive plans have made significant differences in profitability and shareholder profitability before and after the implementation of equity incentive plan. For different excitation patterns, restricted stock incentive plan and stock option incentive plan for the company’s profitability and shareholder profitability have significant differences.This study also investigates the effects of incentive plan elements. Results from regression analysis indicates that the proportion of incentive plan and the authorization term has little effect on the company’s operating performance, while premium has positive impact on company performance. The effect of incentive plan elements is not obvious when stock option is used, while the effect of premium on firm performance is positive when restricted stock plan is used.This study has both theoretical contributions and empirical implications. The study has focused on the uniqueness of GEM listed companies’ stock incentive plans, and discusses the effect of specific elements of incentive plan, not only the incentive plan itself. The results has an important role in guiding the design of incentive plan for GEM listed companies.