Research On Relationship Between Principal Agent Equity Incentive And Corporate Value

As an important measure to solve the principal—agent problem, equity incentive linkes the personal interests of managers and that of business owners by granting operators and managers a certain number of shares of the company in order to motivate the managers dutifully work for the long—term development of the enterprise. Equity Incentive originated in the United States in the1950s, and subsequently it has been widely used in the relatively mature capital markets, such as European and American markets. It has played a positive role in promoting economic growth and the creation of corporate value. However, compared with western developed countries, equity incentive mechanism has not been implemented for a long time in our country, China. With the issue of "Companies Listed Incentive Management (tentative)" in2006, constantly enhancement of the effectiveness of the capital market, as well as the amendment of Companies Act and Securities Act, there are conditions and guidelines for the implementation of equity incentive. At the end of2009, besides the main board market of China’s securities market, the small plates and GEM have also developped rapidly, which urgently demands for equity incentive. It also reached a golden period for equity incentive in2010and2011. But up to date, there is not a verdict for the impact of the implementation to the enterprise value in Chinese market. Therefore, under this background, it is necessary to conduct a systemic and further research on the effect of equity incentive in Chinese market.Because the previous researches mainly focusd on the relationship between equity incentive and enterprise value and ignored the original intention of equity incentive (improving and reducing the cost of agent), this article will directly and indirectly analyse the influence of equity incentive to enterprise value through samples of the listed companies in2009to2011. Agency costs and enterprise value being as two important aspects of measuring the effect of equity incentive, the method of combination of normative and empirical research will be employed in this paper. Through the theoretical and empirical research in this paper, we get the following results:(1) There is a positive correlation between the proportion of equity incentive and corporate value.(2) There is a positive correlation between the proportion of equity incentive and agency costs. Perhaps because the costs of equity incentive is more than monitoring costs brought by the implementation of equity incentive and the reduction of the remaining losses, the overall agency costs still rises after the interaction. Therefore, it is necessary to all sidedly and dynamically feed back and evaluate the effect of equity incentive by synthesizing the costs and incomes.(3) There is a positive correlation between the agency cost and corporate value, which is opposite to what has been expected. This shows that the governance structure of listed companies in China is not perfect. The particularity of shareholding structure puts the companies in a particular operating environment, which cannot enhance the corporate value through reducing the agency costs. Finally, based on the above research and the detailed analysis of Chinese current economic system, nichetargeting recommendations are put forward.