A Study On The Executive Stock Options Of The Private Listed Companies: Present Situation And Performance Analyze

The design of incentive mechanism is one of the key issues in modern enterprisesystem; it is greatly influence the development of the enterprise. The separation ofenterprise’s ownership and management right is the typical features of modernenterprise. According to Principal-agent Theory, the system of operators can share theenterprise’s surplus profits with the owners is the optimal incentive mechanism.Executive Stock Options (ESO) is this incentive mechanism. ESO originated in thewestern developed countries. After nearly30years’ development, ESO has becameone of the incentive mechanisms that can effectively stimulate the managers.China introduced ESO from the late90s last century. But the existing problemsat that time limited the effect of ESO. As the modification of the 《Securities Law》、《Company law》 and the accomplishment of reform of the shareholder structure oflisted companies, the environment of the listed companies carrying out ESO has beengreatly improved. But there are still big differences in China’s current marketenvironment, legal environment and corporate governance with the Westerndeveloped economies, so the adaptability and applicability of ESO in China’s listedcompanies is still a debatable problem. China’s private listed company is the mainforce that announced and implemented ESO. The statistical data shows that privateenterprises accounted for74.8%that announced ESO scheme between2006and2010l. As the difference of ownership between private and state-owned enterprises，the governance structure and the incentives of managers have big difference. As of theend of2010the implementation of the2006private enterprises’ ESO mostly drawingto a close, so research the effect of ESO implemented by private listed companies insuch a time have a certain practical and theoretical significance.In this paper, we elaborate the concept of incentive stock options, the theoreticalbasis and the literature review carried out in detail firstly. Next, we carry out thecomparative analysis of historical data through vertical and comparative analysis ofindustry data through horizontal on the performance of ESO. Then we examined therelationship between the amount of ESO and corporate performance by a regressionanalysis. Empirical results show that the ESO for China’s private listed company’sperformance has a certain incentive, but the effect is not significant. The conditionsfor implementation of ESO are not fully mature. There are still many factors in theinternal governance and external environment that restrict the effect of ESO. Based on these factors, this paper put forward the corresponding proposal.