The Study On The Financial Effects Of The Listed Companies’ Equity Incentive

As a long-term incentive plan, equity incentive is a good way to solve theprincipal-agent problem, is helpful to attract and retain the best and the brightest.Ithas been widely used and get good result in developed countries.In our country,after the reformation of non-tradeable shares in2005, the governance structure oflisted companies has become more and more perfect. Therefore, many companieshave begun the implementation of equity incentive program.This paper hopes tothrough the study of listed companies’ equity incentives, to find the effects andproblems, and then provide advice to further improve equity incentive system oflisted companies.This paper is to study the relationship between the equity incentive andcorporate performance. In consider that equity incentive will induce earingsmanagement, the paper take the extent of earning management into account.Therefore, the analysis of the relationship between the equity incentive and corporateperformance is divided into two aspects. One is neglecting the existence of earningsmanagement, the other is subtracting earings management from corporateperformance. The independent variables are incentive intensity and incentive validity,and corporate performance is the dependent variable. At the same time, because ofthe importance of incentive mode and assessment indicators, the paper makes acomparative analysis between the mode of stock option and restricted stock aboutthe earings management. And according to the degree of difficulty to meet therequirement, this paper divides incentive plans into for purpose of incentive and forpurpose of welfare. Then make a comparison of their earings management.The results of empirical analysis show that the earnings management afterequity incentive is far greater than it before equity incentive. After subtractingearnings management from corporate performance, the corporate performance afterincentive is less than it before incentive. From that, we can infer that equity incentiveinduce earnings management. And whether to consider the extent of earnings management, equity incentive intensity and the performance of the company doesnot exist significant correlation.Before eliminating earnings management, theredoesn t exist significant correlation between the validity of the equity incentive andcorporate performance. While after eliminating earnings management, the validity ofthe eqity incentive has significant positive correlation with corporate performance.Inthe comparison of earnings management, the paper finds that companies whichchoose the mode of stock option their earnings management is significantlygreater than those choose the mode of restricted stock. And the companieswhich are classified as welfare company their earnings management is significantlygreater than those classified as incentive company. It can be concluded that: equityincentive can induce the behaviors of earnings management; the longer the validityof incentive, incentive effect is more obvious; restricted stock incentive mode hasbetter incentive effects, the companies which are classified as incentive company hasbetter incentive effects.This paper s innovation spot lies on the introduction of earnings management.And when deciding sample data, the paper chooses the performance in the day thatthe equity incentive plan has been implement for a full year instead of choosing thedata in the year that equity incentive plan announced.