The Study On The Effect Of Equity Incengtive Mechanism For Listed Companies In China

Equity incentive originated in America in the late 70's of the last century and has achieved rapid development in the subsequent decades. Despite early seeking after equity incentive in the 1990s, the incentive effect was not obvious because of lack of policy and specific historical background before 2005. With the equity diversion reform completed and "Public Companies Stock-Based Incentive Management Measures"(implemented from JAR.1,2006), equity incentives environment has been improved and the enthusiasm of listed companies to implement equity incentives is ignited again. More and more companies involve in the equity incentive and equity incentives become the new theme of the listed companies in China. Under this background, this thesis tries to do a deeper and more comprehensive empirical study on the effect of the implementation of equity incentive from two aspects:market effect and performance effect.This thesis firstly gives a brief review on the equity incentive literature at home and abroad, the implementation status and specific environment. Then, the thesis tries to explore the implementation of equity incentives and the achievements of the listed companies by the market reaction on the date of announcement and the financial ratios from their annual reports using event study and transverse and longitudinal comparative study respectively. In the former analysis of listed companies, we find that the investors give a positive market response to the announcements of the equity incentives plans. A short extra gain exists before event date of announcement means that the notices have leaked a few days ago. Compared to restricted stock incentive model, investors give the stock option incentive model a more positive market reaction. In the event date, the average excess return of the companies which choose stock option incentive model is higher than that of the whole sample of companies. Concerning the financial performance, we find that after the implementation of equity incentives plan, the performance of listed companies is significantly higher than before. When comparing the achievements of the listed companies with equity incentives plan and listed companies without equity incentives plan, the former has a better financial performance. In addition, the thesis further explores the equity incentive strength on the equity incentive effect and finds that equity incentive intensity has a significant positive relation with the incentive effect.Finally, based on the theoretical and empirical research, combined with the institutional background of China, the thesis puts forward some suggestions aiming at the problem of practicing equity incentive, including improving the establishment of the internal environment of the listed companies with equity incentive and improving the external environment.