Research Of Equity Incentive System From An Investor

As modern enterprise system come along, ownership and management has been separated. This is commonly seen in limited companies, especially in listed companies. In modern enterprise system the owner and management has formed typical Principal-agent Relationship. In order make the Utility function of the management and that of owners meet so as to solve the principal-agent problem. Practical exploration and theoretical discovery have been taken both in China and foreign countries.During the 1980s, US and UK has began their reforms in corporate governance. One of the most important acts is the introduction of incentive mechanism to incent the management. It has been several decades since the introduction of incentive mechanism and during this time, scholars have done empirical studies on the effects of incentive mechanism. However, they didn't come up with the relationship of incentive, cooperation's performance and stockholder's interests; they've even reached contradictory conclusions.The first companies to introduce incentive mechanism in China are non-listed companies. And later on it became popular in listed companies. It was not until 2006 when incentive was truly introduced in listed companies. For in 2005 the reform of listing non-tradable shares of listed companies swept the system stumbling block obstacle.In 2006, The Measures Governing Equity Incentive Plans of Listed Companies (For Trial Implementation) has set a legal basis for equity incentives in china. It can be foreseened that the introduction of incentives will deeply change the Chinese stock market.This paper mainly focuses on whether the price trends of the listed companies are better that that of market index after introduced equity incentives from an investor's perspective. While performing the analysis, two assumptions has to be clarified first:the first assumption is imperfect market, and the second is economic person. Considering management is rational economic person. While making decision they will inevitable taking more consideration for their own interests.Again taking into account the information asymmetry, although the information disclosure system is gradually improving, still, not all public companies disclose all information; all information held by participants in the securities market can not be completely symmetrical. Exist in China's securities market information asymmetry, this paper deals with the management and the information asymmetry between investors, of which management is information superiority, a better understanding of the company's business development, financial information, industry prospects and so on, and individual investors at an informational disadvantage, as is the need to collect and analyze information on the cost and time, investors may consider giving up gains in the cost of collecting and analyzing information, or does not address the ability to get information, and so on the existence of circumstances so investors can not be more than managers of listed companies to understand the situation.Facing numerous listed companies, how could investors avoid blinding investment, and receive more than the market's yield? In my opinion, when choosing stocks, investors can take whether the listed companies have an incentive plan into consideration. If the incentive of equity of listed companies which indicates that managers of the available information according to their own incentive programs that target is likely to be completed, so that incentive program established to make sure they can benefit from the plan. Consider the actions of management, investors can expect those companies who employ an incentive plan can get better performance. So choosing this company's stock may be above-average gains for the investors of the benefits, This is the conclusion the paper hopes to draw.The paper firstly analyzes the equity incentives, asymmetric information from theoretical point of view, laying the foundation for the empirical analysis below; and then introduces the current faces of China's equity incentives and the status of China's securities market, securities market conditions in the description of the main introduction of asymmetric information in the stock market situation and the reasons. Finally, the author use comparative analysis to confirm the previous assumptions. In the comparative analysis, in addition to considering the broader market, the author also considered the same type of listed companies, listed companies in the same type as the control group and compares the sample companies. Comparison of two results have shown that, if investors can be considered in the choice of equity incentive stock listed companies, will offer investors more than the broader market average return of income.