The Effect Of Equity Incentives In SME Board

Since its establishment in Shenzhen stock exchange in2004,the small and medium enterprise board(SME board)has been playing increasingly important role in China capital market with its growing scale and distinct characteristics, thus leading people to compare SME board as China’s NASDAQ.Along with the constant expansion of China’s SME boards and the further completion of non-tradable shares reform, and the promulgation of 《Listing Corporation equity incentive management measures(pilot)》, more and more listed companies of SME board start to promote the stock ownership incentive plan to resolve the agent problems, thus laying the SME board as an essential part of the listed companies that has carried out the stock ownership incentive mechanism.As a method with long-term incentive,the stock ownership incentive mechanism can either combine benefits of the owners with the counterpart of the managers to impel the managers,reduce the agent cost and improve the company performance,or stimulate the managers to take the earnings management for personal interest.All in a word,nowadays most of the research focused on Shanghai&Shenzhen exchange, little research has been done about the SME board. Besides, most of the researchers ignored the earnings management triggered by stock ownership incentive while studying about the effect of stock ownership incentive. In this context,This paper takes the SME board companies that have implemented stock ownership incentive as research object, using earnings management to modify the company performance and carried out an empirical research to study the effect of stock ownership incentive.In this paper,we firstly make a brief organization and discussion of the existing international and domestic studies and theories about stock ownership incentive, meanwhile we have made specific definitions of stock ownership incentive and earnings management, analyzed the current situation of the listed companies which have adopted the stock ownership incentive. Secondly we mainly focus on the correlation relationship between the stock ownership incentive of SME board and the company performances.In consideration of the possible earnings management behaviour resulted from the stock ownership incentive,we establish the models respectively and use the Regression analysis method to explore the correlation relationships between the extent of stock ownership incentive and the company performance with earnings management or not. Moreover in this paper, we have proposed the hypothesis of the relationship between the stock ownership incentive and earnings management, then we build the regression model to make a further study to verify whether the stock ownership incentive stimulates the earnings management behaviour to occur. The research results showed that:(1)As a whole,the stock ownership incentive conduced in China’s SME board has made definite achievements and improved the corporate performance to a certain extent;(2)the stock ownership incentive implemented in SME board has promoted the managers to take earnings management for their own interests.(3)Earnings management behaviour induced by stock ownership incentive has weakened the effect of stock ownership incentive.In the last part, we have proposed the suggestions focused on the existing problems occurred in the process of promoting the stock ownership incentive in SME board based on the descriptive analysis and the empirical research results,besides we have pointed out some deficiencies about this paper.