Relevant Research On Equity Incentive And Company Performance Based On The Listed Companies In China

With the separation of ownership and management, the principal-agent problemhas become one of the important aspects which shareholders are more and moreconcerned about. At the same time, in order to find a balance between the interests ofshareholders and managers, enterprise value maximization is an important idea tosolve this problem. The enterprise value maximization theory requires the managersnot only think for their own interests but also pay more attention to the interests ofshareholders. Now equity incentive is an effective and popular way for the owners tosolve principal-agent problems. Through equity incentive, owners allow managers ortechnicians obtain part of the shares of the company under certain conditions. Bygranting stock, the managers become the owner of the company and their interests areconnected with corporate performance. Equity incentive, from its nature, can be saidto be long-term incentive mechanism to solve the principal-agent problem. Namely,by giving managers appropriate amount of stock, it can not only avoid the managersignoring the interests of shareholders, but also can achieve the maximization ofenterprise value.Therefore, the main purpose of this paper is an empirical study on therelationship between the equity incentive and company performance. The dataoriginates from the finacial data which are listed in the Shanghai and Shenzhen stockexchanges, and the time span from2009to2012. The performance of the company isto choose comprehensive financial index as the alternative variables. The index usesthe idea of dimension reduction and the principal component analysis method, byselecting financial indicators from the four aspects: solvency, operating capacity,profitability and development capacity. This study is divided into two parts. The firstpart is the comparison of corporate performance between the companies whoimplement equity incentive and who not, and then use regression analysis to test; thesecond part is to study the relationship between the level of equity incentive and firm performance. The level of equity incentive is caculated by the total number of sharesof equity incentive/company total capital stock. By the regression analysis, resultsshow that, the company performance of whom implements equity incentive is higherthan that who doesn’t, and the higher the level of equity incentive, the better thecompany performance. At the same time, according to results of the analysis of thecontrol variable, performance of state-owned enterprises is worse than the that ofprivate enterprises; and the remuneration given to the executive is higher, thecompany’s performance is better; the more concentrated the share is, the better theperformance of the company; if the chairman and general manager is one person,performance of the company is better. So this paper proposed the following policyrecommendations:(1) Equity incentive should be encouraged. Shareholders andmanagers should be strengthened on learning the corporate governance, designrational equity incentive schemes and supervise their implementation, so that theequity incentive can really play a role in encouraging managers and improve theperformance of the company.(2) The level of equity incentives can be increased bysending shares and increase the amount of stock options and restricted shares.(3)The government should make laws and regulations about the equity incentive to letthe equity incentive be implemented in a good environment and have good effect onperformance.(4)The government should be open to the market management, reducethe influence of state-owned capital to the enterprise.(5) Except by equity incentive,company can improve performance by increase the compensation of executive.(6)The equity should be concentrated and be sure that large shareholders have the abilityto control the decision of company.