The Effect Of Major Shareholder’s Control On Managerial Equity Incentive

There are two views about equity incentive effect in academia. They are “optimalcontracting approach” and “managerial power approach”, while the two theories aboveare both based on single principal-agent theory. The former deems equity incentive is aneffective means to alleviate the agency problems between shareholders and management,but the latter considers equity incentive aggravates the agency problems. However, listedcompanies in China always have the main character of relatively concentrated equity orhighly concentrated equity. Single principal-agent relationship has evolved into doubleprincipal-agent relationship. To be specific, the double principal-agent relationship is therelationship between shareholder and management and the relationship betweencontrolling shareholder and minority shareholder. The researches on listed companies inChina with concentrated equity or highly concentrated equity vary from western countrieswith diversified equity. In order to accurately inspect the effect of equity incentive in ourcountry, we should take the corporate governance environment into account, especiallythe major shareholder.Based on dual principal-agent theory, from perspective of interaction between majorshareholders and management, this paper theoretically analyses the impact of majorshareholder’s control on managerial equity incentive. Subsequently, we adopt listedcompanies in China which announce and implement equity incentive projects between2010and2012to do the empirical research. In addition to this，the paper also contraststhe effect of major shareholder’s control between state-owned and privately–owned, newhigh-tech and non-new high-tech companies.The empirical results show that:①regardless of the big shareholder control, equityincentive has positive effects on the corporate performance.②major shareholder’s controlweakens the effect of equity incentive, the more the major shareholder owns the equity,the more negative impact on the managerial equity incentive.③the property ownershipinfluences the effect of major shareholder’s control, in state-owned companies, theownership of major shareholder has an positive effect on the managerial equity incentive,and in privately–owned companies, major shareholder’s control weakens the effect ofequity incentive.④the growth rate of companies partly influences the effect of major shareholder’s control, in new high-tech companies, major shareholder’s control weakensthe effect of equity incentive, and in non-new high-tech companies the impact can’t beverify.