Research Of The Implementing Effect Of Equity Incentive Based On The Listed Company Of China

Separation of ownership and control, which triggered the core issues ofcorporate governance—the Principal-agent Problem between shareholders andmanagers, is the most prominent feature of the modern corporate system. As animportant method to solve the Principal-agent Problem, equity incentive with thenature of long-term incentives, has a strong theoretical foundation and abundantpractical experience in the developed countries, and has become an important part ofthe senior management incentive compensation.While in China, the concept of equity incentive was introduced later, in addition,due to the split share structure, the practice to promote equity incentive is also subjectto certain restrictions. On the one hand, in2006, the China Securities RegulatoryCommission (CSRC) issued the "Equity Incentive Management Measures of listedcompanies in China (Trial)", which provides a normative basis and security policy forthe practice of equity incentive in China. On the other hand, the split-share structurereform began in the same year made the circulation of equity to be possible. Thus, thenumber of the equity incentive program and the levels of incentive have beensignificantly improved, the way to incentive is also showing a trend of diversification.Based on the comparative analysis of previous studies, we proposed fourquestions:1.How dose equity incentives play a role in the corporate governance?2.Are the equity incentive and corporate performance really relevant in the practice ofChina’s listed companies?3. Dose shareholders can make benefit from equityincentives?4. In our country, which kind of incentives is to bring the best effects?With these questions, we selected226A-share market equity incentive plans from2009to2011as a large sample of data. At first, we summarize the incentivemechanism of equity incentive with corporate governance theory, principal-agenttheory, motivation theory and property rights theory. Then study the effect of Splitshare structure reform through a comparative analysis, multiple regression analysis,and event analysis method based on the efficient markets hypothesis. Gives theanswers to these questions, and draws conclusions which are meaningful for the listedcompanies in the future.The first part of this thesis is the introduction, contains the analysis of thebackground and significance of the study as well as the presentations of researchmethodology.The second part is the literature review, through comparison and analysis of theliterature, summed up the characteristics of the domestic and foreign research andgeneral idea. At last find that foreign scholars often use Tobin-Q values depicting thecompany performance levels, while domestic studies began to recognize the incentiveeffects from the empirical test.In the third part, we introduce the meaning, the types and basic theory of equityincentive. After the different ways of stock incentives are compared, the conclusionwas found that stock options suit for growing companies, restricted stock suit for thecompanies with high level of management, the incentive effects of stock appreciationrights and virtual stock is relatively weak.Equity incentive is developed with a complex theoretical background. Corporategovernance is the starting point and the end of equity incentives. Principal-agentproblem is the direct object of equity incentives. Incentive theory is the region whichequity incentive belongs to. And property rights theory provides equity incentiveswith specific methods. With all of these theories, equity incentives have bothincentive and restraint effects.Part IV is empirical research. At first, we study the overview of China’s listed companies, and found it has the features such as stock option-based, growth-orientedenterprises attractive, and often with low excitation level. Then, from the companyperspective, we use ROE as an indicator to portray the performance of the companyand to analyze the correlation between company performance and incentive levelswith multiple regression analysis. Finally we summarized that there is a significantpositive correlation between the two variables.From the shareholders’ perspective, we measure the disclosure effect of theannouncement of equity incentive and emphasize that the public announcement ofequity incentive plan can provide shareholders with an increase in personal wealth.Finally, wealth effects of equity incentive were compared from the modeselection, the distribution of sectors and the levels of incentives, the results indicatethat stock options, incentive level of3%-5%, Small and medium-size EnterpriseStock Market and GEM listed companies can obtain higher cumulative averageabnormal returns in window period.