The Incentive Effects Of Stock Options Under Managers’Rent-seeking Perspective

At first, stock option is a financial derivative. After1950s,stock option became the form of long-term incentives for the managers in modern enterprises. The core of the incentive stock option that converts managers seeking the maximization of individual interests into to maximize the pursuit of business interests, or both has the same direction. Stock option could make managers pay more attention to the operation of the company’s long-term performance, prevent the manager’s short-sighted and guide their long-term behavior.Shareholders entrust managers engaged in business and management activities, but the objective function between shareholders and managers is different, when they pursue their own utility maximization there is existing interest conflicts, so the principal-agent problem will be followed. Therefore, academics find that the research conclusions on the stock option effectiveness have a lot of differences.This paper based on January1,2007to December31,2010the listed companies in Shanghai and Shenzhen stock markets, which announced stock option incentive plan draft as a sample to inspect managers rent-seeking to the effect of stock option.Firstly, we reviewed the stock option incentive effects in both theoretical research and empirical research literature, the part of theoretical literature subdivided into domestic research and foreign research, the empirical literature review section is divided into the positive impact of stock options on corporate performance and the negative effects on performance. Existing research is reviewed, and noted that the development trend of future research. To test managers rent-seeking how to impact the incentive effect of stock options, the article based on the perspective of the manager rent-seeking to build the framework of theoretical analysis, and the manager rent-seeking is described by the two dimensions of management power and earning management. In the companies which have larger management power, the managers owner more conditions and ability to do rent-seeking activities, that can influence the design of stock option contracts. In order to get a lower exercise price, the managers will be taken downward earnings management prior to the stock option incentive plan. The managers will be taken upward earnings management after the stock option incentive plan. Thus, stock option has become a tool of the manager rent-seeking, rather than the incentive to hard working.Secondly, on the basis of the above theoretical analysis we do the empirical analysis, we use listed companies reported stock option market reaction to the draft plan, the window period excess stock market returns of listed companies to measure the market performance of listed companies. And we use the net capital return of companies in the first quarter to the fourth quarter after the stock option plan to examine the financial performance of listed companies. Our paper selects two indicators of the management of power and earnings management to measure the characteristics of the manager rent-seeking. From the empirical test, we have the following conclusions:the management of power and the company’s market performance has a significant negative correlation, the management of power and financial performance has a significant positive correlation. Before the implementation of stock option plans, the negative correlation is between earnings management and the company’s market performance. After the implementation of stock option plans, earning management and the company’s financial performance is positively related.Finally, this paper puts forward some advices to solve the problems. Firstly, perfect corporate governance mechanism through set up the board of directors of the company and the manager institutions respectively, establish manager personnel responsibility system and build an effective management incentive mechanism.Secondly establish an effective capital market through perfect the information disclosure system of the listed companies and judicial system. Finally, optimize the performance evaluation system through select the appropriated measures of listed companies to reflect the real value of the assessment index and the formation of regular assessment system to optimize the performance evaluation system.