Stock Option Incentive And Corporate Performance Of Listed Companies In China

The executive stock option is very popular in developed countries of western world and its practical experience indicates the executive stock option is an effective method to improve the performance of listed companies in a long-term. Although the prototype of executive stock option has emerged in China in early 1990s, no agreement has been achieved by researchers on the incentive effect of executive stock option practiced in China.The background of this study is within three years after the China Share Reformation and forty-six companies are select as samples. The results indicates that the implementation of executive stock options in these companies significantly improved corporate performance, using the means of regresion analysis and factor analysis. Moreover, private enterprises show better incentive effects than state-owned ones. First, this thesis analyzes the influence of stock option plans and builds up a theoretical framework, using the relevant economics and managerial theories about stock option plans on corporate performance. Then, this thesis conducts regression test by choosing forty-six sample companies performing formal introduction of incentive stock option plans within a two years period from 2006 to 2007. The analysis results show that the listed companies performing the executive stock option plans have significantly improved their corporate performance. What's more, the private enterprises get better incentive effect than the state-owned enterprises. Further, by comparing the sample companies' stock option incentive schemes, including the differences and similarities, five representative vesting elements are extracted and then classified them into four kinds of combination models. The regression analysis shows that different vesting elements combination models make the effect of corporate performance caused by incentive stock option different. This thesis proposes an optimal scheme design for a listed company that performes stock option plan. It should have those characters, including the execise price determined according to legal limit, vesting is valid for 7 to 10 years, the persons holding stock option still retained granted rights to exercise the option of vesting after their retirement, earnings of net assets is increasing and arranged volume for each exercise period of stock option is decreasing. At last, according to the conclusions drawed from the regression analysises, this thesis lists sevelar advices for the executive stock option plan process to overcome prsent deficiencies. The innovation is not only that this thesis pays attention to the nature of different corporations and finds the private enterprises gets better effects, but also it classifies the representative vesting elements into four models. These models are HUSIC, HUSIR, HUSDR and HULDR, and this thesis also concludes that HULDR is the best design. To sum up, the purpose of this paper is to provide useful guidance for companies in China to design optimal stock option plans.