The Conflict Between Large Shareholder Control Right And Management Incentive-study On Effectiveness Of Equity Incentive

The management equity incentive system is an effective solution to the principal-agentproblem in enterprise. With the relevant laws and regulations have been promulgated andimplemented, the system environment of company equity incentive tend to be standardized.However, the actual result of equity incentive is not just as one wish, and the domestic research onequity incentive effect has no conclusion. Therefore, many scholars have begun to focus on theinfluencing factors of equity incentive, attempt to explore the causes which weaken incentive effect.In this paper, based on the perspective of corporate governance environment, we study the effect oflarge shareholder control right to equity incentive.The allocation of control rights and incentive arrangements are two important content ofcorporate governance, the enterprise often has the incentive problem and group decision makingproblems at the same time. When there is a conflict between large shareholder control right andmanagement incentive, these two problems have contradictions, and reducing organizationperformance, thus weakened effectiveness of incentive. This conflict may be a conflict of interestcaused by shareholders and management’s different decision goal, also may be a cognitive conflictcaused by their different decision judgments. This paper is aimed at the conflict between largeshareholder control right and management incentive, adopt theoretical analysis and demonstrationanalysis to study on the conflict’s effect to the equity incentive effectiveness, and the differences ofinfluence degree between different ownership companies and different growth level companies.The theoretical analysis in this paper is from the point of view of private benefits of largeshareholder. Then establish an economic game model of large shareholder and management toanalyze the conflict between them. After a series of mathematical reasoning, we reach a conclusionthat conflict has inhibitory influence on equity incentive effectiveness, and then put forward thecorresponding hypothesis. The empirical test collected Chinese listing company data during2006-2011, took the interaction of control right and incentive as an explanatory variable, and put itinto the model. Used panel data to complete regression analysis and verify the hypothesis. Throughthe observation of regression coefficients of explanatory variables, the following conclusions can bedrawn:(1) The conflict between large shareholder control right and management incentive weakenthe equity incentive positive effect to enhance company performance.(2) In state-owned enterprises,the conflict of interest between large shareholder and management is more obvious, and has more adverse effect on incentive effectiveness.(3) In high-tech enterprises, the cognitive conflict isintensive, and more severely weaken incentive effectiveness. The conclusions of this paper putforward a reasonable explanation to the poor incentive effect in Chinese listing corporations.Provide empirical evidence about considering suitable corporate governance environment whendraw up the incentive plan.