An Empirical Analysis On The Effect Of Executive Heterogeneity On The Effect Of Equity Incentive Plan

Our country has come into the key period of economy revolution, henceexploring a long-term incentive mechanism, perfecting corporate governance,equalizing the interest distribution have the practical and thcorctical meanings.From the Reform of Non-tradable Shares in2005, the stock incentive plan hasgradually becomc a vital method to improve the corporate value. The result ofthe incentive plan’s practice from2005to2013has shown that the result of thestock incentive plan implement mingled hope and fear. The success implementdid increase the corporate finance performance and governance, however, thefailure of the plan has various reasons, including the influence of the macroeconomy，the change of the industry competition environment, the problem ofthe incentive plan and the character of the top management. This paper is basedon the principal-agent theory and upper echelons theory, exploring the effectfactors and effect mechanism of th TMT h’eeterogeneitys inlfuence on the resultof implement. Hope to reveal the factors which effect the result of theimplement and the effect degree by establishing regression models.This paper means to reveal what TMT heterogeneities can attribute to theimplement of the stock incentive plan. For those companies that carries outincentive plan, whether heterogeneities can influence the financial performanceand how to effect.Atfer concluding the coming-out and development of the stock incentiveplan and reviewing the research of stock incentive, TMT heterogeneity and theeffect factors, this paper defines the key concepts including TMT heterogeneity,result of the stock incentive plan implement, declared the reason for choosingthe index and explained the effect mechanism and bring out the hypothesis.This paper concludes that the effect mechanism of the TMT h’eterogeneitysinfluence on the result of implement is: the TMT heterogeneities have an effect on the actions of the top management (including the understanding of the plan,the resolution of the conflict, the strategy decision, and the declaration ofdisagreements，then influents the result of the implement. An effective stockincentive plan needs good management action to support the good result. Themanagement action is influenced by the TMT heterogeneities, hence a companywhich possesses certain TMT heterogeneities characters will have positiveeffect on the result of the implement.The key and difficulty point is the choosing of the TMT heterogeneitiesindex. There are no deifnite research conclusions both abroad and domestic.Human demography is what is otfen used, defining human characteristic as theheterogeneities such as age，education, tenure，major, work background,experience, and risk preference which are quantifiable. The world view，valueview, moral value, society status and characteristic are hard to makequantification, so this paper has not included them. This paper obtains data fromResset and iFind database, extracting4heterogeneities that are age, education,tenure and risk preference.This paper uses Probit model to study relation between the heterogeneitiesand the implement. Set ROE and Tobin Q as explained variables, establishingregression equations, to study the relation between heterogeneities and theafter-implement financial performance. Use practical case to explain the studyresult.The main conclusions are:(1)The TMT heterogeneities have an effect on the management action,hence to effect the implement of the stock incentive plan. That is，the higher theage, education, tenure heterogeneities are, the less possible for the plan to carryon; the higher the risk preference heterogeneities are, the more possible for theplan the plan to carry on.(2)For those companies that carry out incentive plan, age, education， tenure and risk preference have no obvious relation with financial performanceand corporate value. This means heterogeneities can attribute or hamper theincentive plan’s implement, but not the after-implement ifnancial performanceand corporate value. TMT heterogeneities cannot influence the financialperformance and corporate value separately, but need to work on with thecombination of other factors.Even though the paper has theoretical and practical meanings, limited bypersonal capability and obtainable resource，the research of the relation betweenTMT heterogeneities and stock incentive plan implement is quite preliminary.There are certain insufficient such as the inaccurate choosing of the sample，theheterogeneities choosing are too simple，the effect mechanism needs moreexplore. A belter research line is needed in further study to study more valuableresults.