Does China’s Stock Option Plans In Listed Firms Conform To Optimal Contracting Theory

As a mechanism to solve the principal-agent problem, stock option is originated in the United States in the1950s, its initial purpose is to help senior managers to escape high taxes. In the late1990s, the stock option was introduced into China, but subject to special legal environment and the imperfect governance structure, the development of the system was not smoothly. The split share structure reform carried out in2005had solved the problem of full circulation of shares, creating the conditions for the implementation of the stock option in China. Besides, many laws about stock option also published. Therefore, from the2006stock option in China has developed rapidly.The rapidly development of stock option in China promoted the development of relate research. Alost domestic stock option research was focused on the performance, while, the domestic has not get unanimous conclusion. And before the split share structure reform, research in this area was based on the single case and its data is also not completed. So there are few researches about why the company granted stock option. Therefore, the basic purpose of this paper is to explore the reasons that why the domestic listed companies grant stock options in the optimal contract theory.In this paper we studied listed companies that granted stock option in China, and through descriptive statistical analysis and binary logistic regression analysis, we find that younger faster growth companies, the company with senior management, the company which state-owned shares account for a relatively small number are more likely grant stock option. These three indicators are in line with the interpretation of the optimal contract theory. While indicators of this paper set on non-motivating factor that is listed on the company’s cash flow, the senior management tax targets and the cost of the financial reports have no significant relationship with stock option.Therefore, we believe that the listed companies in the implementation of a stock option plan is not out of the above three motives.This paper is to make a theoretical explanation of the stock option implementation of listed companies. The biggest innovation of this paper is that we divided the motivation of stock option of listed companies into the most contract theory of motivation and the incentive motivation. Through descriptive and regression analyses we want to get the answer why the listed companies granted stock option, whether it can be explained by optimal contract theory. In addition, this paper also has some shortcomings:one is that the small number of samples, so there are some shortcomings in conclusion. The other is that the selection of indicators which can be further improved.