Stock Option Incentive On Firm Performance After The Share-Split Reform

After invented in1950s, the stock option incentive has been widely used in the manager motivation in western corporations. The listed companies in China began to try executive stock option incentive in relatively recent, for the subject to the restriction of market environment and the provisions of any law or administrative regulation, especially the phenomenon of share-split. Such a new incentive mechanism achieved the anticipated effect after the share-split reform in2005. More than200listed companies have started stock option incentive since2006. Thus whether the stock option incentive improve the firm performance has been widely concerned.This paper analyzed firm performance before and after the SOI plan. After the share-split reform, the shareholders interest with others. The SOI plan incentives the management to improve the performance of the company.Based on the collectable and investigable ROE, the Tobin’Q and the SOI plan information of the listed companies which had declared their stock incentive plans after the share-split reform in2006, this paper research the effects of stock incentive plans. Analysis the rules of the stock option incentive plan notice. Comparing with the firm performance of industry average and the sample after execute the stock option incentive. We found the research samples have a higher profitability after the SOI, which also higher than the firm performance of industry average.Through setting up a LSDV model to analysis the sample’s annual data from2006to2008. The result shows that the SOI plan advanced the performance of the listed companies. The value of Tobin’Q rises more than the ROE’. The stock held by the management, which base on the confidence of company’ future performance, increase the valuation of the company. And it would take a long time to improve the company’s financial performance by reform the internal management.As the reform of China capital market, the enhanced market efficient, the reform of governance structure of listed companies, the SOI will play the role of equity-based incentives to promote the improvement of performance of listed companies in China and ultimately beneficial to the overall level of China’s capital market to improve.