The Relationship Between Equity Incentive Mechanism And Corporate Performance In China

Equity incentive mechanism has become mature since it was raisedin1950s by the Pfizerfor the first time, andit has developed gradually for over60years in the capital market of developed countries. The mechanism has resolved theagent issues of company consignors and managers and also played a corresponding roleof attracting talent and so on. In order to improve company performance and reduce principal-agent cost, our country tried the equity incentive at the first time in the1990s with the experience of foreign corporate governance, then in order to promote and implement the equity incentive in our country,we promulgated a series of laws and regulations in2005and2006successively and solved the problem of the non-tradable shares of listed companies in our country, which has eliminated legal obstacles and barriers for the implementation of our country’s equity incentive system. However, because our country capital market started relatively late, the improvement of the system and the effectiveness of the market have a big difference compared with that of the developed countries, and for the validity of equity incentive it may have bigger difference. Therefore, it is necessary for us to do some research on how this long-term incentive mechanism, equity incentive, has affected listed companies in China. Through studying the relationship between equity incentive and the performance of listed companies, we have found the method to improve corporate governance and corporate performance in order to bring out some appropriate suggestions to our equity incentive and to enhance the international competitiveness of our listed companies.Firstly, in the he first part of the article preface we briefly introduced the research background and significance, the research ideas and methods; respectively, then summarized the relationship between equity incentive and corporate performance of the domestic and foreign companies, at the same time we reviewed the difference and similarities between domestic and foreign research. The third part mainly described the relationship using principal-agent theory, human capital theory, motivation theory and management rent-seeking theory, and proposed the interest convergence hypothesis and management defense hypothesis, etc. The fourth part introduced the development of China’s equity incentive process, and the definition of equity incentives and executives. The commonly internationally used equity incentive models and their advantages and disadvantages as well as their applicability were also reviewed in this part. The fifth part was the empirical part. We analyzed comparatively the effects of different modes and the implementation of different industries through descriptive statistical analysis. Whether the A-share listed companies in2011implemented the equity incentive was set as a dummy variable which was also regarded as a model explanatory variable. And we set the weighted average of each company’s ROE as an interpreted variable to evaluate the corporate performance in2012. The company sizes, capital structure, the proportion of independent directors, and the industry were defined as control variables. We analyzed the relationship between the equity incentive and listed companies’ performance by regression analysis, further discussed the existence of the incentive-effect interval. The final part described the limitations of this study, while put forward several policy recommendations on our country’s implementation of equity incentive.By the descriptive statistical analysis and far linear regression analysis we conclude that:(1) there are significant negative correlations between the implementation of equity incentive and corporate performance, namely the weighted average return on net assets of companies with is significantly lower than that of companies not implementing the equity incentive;(2) so-called interval effect of the equity incentive does not exist;(3) listed companies prefer to use stock options and restricted stock incentive, and the former ones’average net assets yield higher;(4) the recognition degree on the implementation of equity incentive in varying sectors is different, and information technology companies and cultural communication industries prefer to use equity incentives.Innovations:(1) the management rent-seeking theory is introduced in the theoretical analysis part of equity incentive, and this theory is relatively scant in the previous literature;(2) the executives’ holding proportion of listed companies is referred as the proportion of the equity incentive amount accounted to the company’s total number of shares when the equity incentive plan was announced, which is a true result of the executives stake proportion caused by equity incentive, In previous studies, the whole executives’holding was generally used. However, it was not distinguished that if executives’holdings was as a result of equity incentive or caused by other means.