A Research On The Stock Option Incentives And The Over-investment In Listed Companies

Because of the separation of ownership and management rights, there exists interests conflict between shareholders and managers in the listed companies. Based on this reason , the managers have the motivation to choose over-investment by using the company’s free cash flow to get the job consumption and other monetary or non-monetary income. This behavior will do harm to shareholders interests and increase their agency costs. In order to solve this agency problem, there must establish a long-term interest mechanism between the shareholders and the managers, the stock option to the managers is just exactly a good way , by restricting the managers investment choice to improve the company’s performance and value. Therefore, the effectiveness of the stock option on managers has become a hot academic study.This article aims to do a research on the relationship between the stock option and the managers over-investment choice in listed companies, and then discuss the effectiveness of stock option’s constraint on managers. In this paper, we using the principal component analysis to discuss the company’s over-investment, using regression analysis to discuss the relationship between the investment and the cash flow, and the constraint of equity incentives to the company’s over-investment.Through the empirical analysis, we got the following conclusions: First, there are over-investment behaviors in China’s listed company; Second, the more free cash flow the company has ,the managers are more likely to choose over-investment; Third, because of the imperfect cooperate governance structure and the market mechanism of our market, the stock option on managers did not significantly affect the managers investment choice.