Research On Different Types Of Stock Option Plans And Their Effects Based On Chinese Listed Companies

The separation between ownership and management, the information asymmetryand other problems is commonly existed in many modern enterprises. As a financialinstrument, stock option is introduced into corporate governance, and it’s consideredto be an effective reward incentive system for an enterprise asset owner to awardmanagers, thus more and more companies adopt such long-term incentive plan.However, there exists incompletement of corporate governance and immature ofsecurities market in our country, and the current study of stock options’ incentiveeffects has no unanimous conclusion, so it’s necessary to study the effects of stockoptions.Firstly, we reviewed the relevant literature and theoretical research on the effectsof stock options. Considering the difference between the developed countries andChina in the management system, the purpose of introducing stock option plans, theeffectiveness of the stock market and other aspects, we proposed to separate the stockoptions into different types. According to the comparison of vesting conditions incontract elements among the first three years, we divided the stock option plans intothe welfare-driven type and incentive-driven type, and studied their internal andmarket effects respectively. As for internal effects, we selected the performanceeffects and risk effects, which were analyzed by panel data regression.Simultaneously, the market effects were achieved through the response of theimplementation plan by market, which were analyzed by the event study method.Taking the listed companies that introduced the stock option plan in2006-2013as the sample. Results showed that from the internal effects aspect, theimplementation of incentive-driven type plan had no significant effects on companyperformance and risk, while the implementation of welfare-driven type had negativeeffects. As for the market effects, the phenomenon of stock price manipulation wasnot obvious before the announcement of the stock option plan, but the informationwas leaked out on the T-1day. In the event window, investors gave a positiveresponse to incentive-driven plans, while gave a negative response to thewelfare-driven plans.These conclusions are not only important to companies for a better understandingof incentive stock options, distinguishing between different types of stock options, but also benefit for investors to dig out valuable information from the stock optionplans, and to better take advantage of investment opportunities.