An Empirical Study On The Effects Of Executive Equity Incentives On Corporate Performance In China

Equity incentive is a strong incentive linked corporate performance, which can blur the boundaries entrusted with the agent, and reduce the "moral hazard" and "adverse selection" of management, makes the target more consistent between the management and shareholders. Since from corporate accounting point of view, the equity incentive plan is a method that transferring profits to some executives through the outflow of non-cash "or" cash inflow ", then creating many games from the perspective of interest analysis.In the after stock reform era, China’s equity incentive was stopped, most of the corporates and capital markets are widely accepted this equity incentive which originated in foreign country, and there is a dispute whether domestic executives’equity incentives has a positive effect on the performance of the company. This article is aimed at the adoption of the new data, methods and systemic measure of incentive stock options the indicator-CEO total wealth and the elasticity of the performance of the company (Price-Performance Elasticity, PPE), taking into account the traditional equity incentive measure-CEO proportion of shares held (Price-Performance Sensitivity, PPS) and the CEO held the natural logarithm of the market value of shares (Price-Performance Semi-Elasticity, PPSE), to explore the relationship between the executives’equity incentives and the company’s financial performance (Return On Assets, ROA, Return On Equity ROE), market performance (Earnings Per Share EPS, the stock yields, Yield)We use182A-share listed companies in2006-2011which passed equity incentive plan as the samples and study the relationship between the PPE\PPS\PPSE of CEO and financial performance (ROA, ROE), and market performance (EPS, Yield). First of all, we study A-share listed company equity incentive as four aspects:industry, the subject matter of source and the ratio of a comparative analysis, and tap the equity incentive feature. Secondly, we analysis the relationship between the equity incentive and financial results, market performance, using ordinary least squares regression (OLS) and fixed effects regression (Fixed-effect Regress) analysis. The research results show that there is a significant positive correlation between the PPE, PPS and PPSE as CEO equity incentive indicators and company performance (ROA, ROE, EPS), but the PPE’s incentive effect on the performance of the company’s is far better than the PPS and PPSE. This paper found no significant relationship between the PPE\PPS\PPSE and stock yields. In addition, the study also found that the PPE rise with the rise of the size of the company and increased with the increase of the company’s risk. Then paper use two-stage least squares regression with the method of instrumental variables (Two Stage Least Squares Regress,2SLS) analysis, and supports this conclusion.This study shows that executives’ equity incentives are positively related to company accounting performance, but there is no significant relationship between them and stock market performance(stock yield), and finally gives policy recommendations:standardize accounting policies, incentive stock options to furtherly improve the system of executive equity incentive, capital markets and the executives market mechanism to improve the level of corporate governance.