The Influence Of Stock Incentive On Dividend Policy Preference

The implementation of Administrative Measures for Stock Incentive of Listed Companies in2006meant the official start of stock incentive system of Chinese capital market; in the past, Chinese research on stock incentive focus on the relationship between it with corporate governance and profit management, many domestic scholars researched the driving elements about company dividend policy from perspective of ownership structure, debt paying ability, and agent problem, etc. Theresearch on corporate dividend policy and senior-management stock incentive rises in recent years. There exists many common points between them. Firstly, both corporate dividend policy and protective stock option incentive belong to interest relationship between corporate shareholders and management layer. In reality, the dividend distribution and stock option incentive of management layer are problems the companies often meet; in the process of revision and implementation of dividend policy and option draft, the corporate management layer plays an important role; furthermore, the combination of two positions commonly exists in China. However, few people include them into same research system. Currently, China is under a large environment of economic transition, what function the senior executives, as the important factor in formulation process of dividend policy and option incentive, will play? Do they make use of dividend polity to influence option incentive? Will option incentive change dividend agency cost theory under Chinese system to certain degree? The self-serving behavior of stock incentive is often measured from the perspective of profit management and scheme design, but no analysis is made from perspective of dividend. Currently, few people research self-serving behavior of stock incentive from perspective of dividend distribution in China. The research of this paper is just a novel academic trial. We will carry out theoretical and empirical analysis to demonstrate the influence of stock option incentive in Chinese market on dividend policy. This paper consists of7parts, each of which includes the content as follows:Chapter Ⅰ refers to introduction of this paper. This part firstly describes general research background and significance, establishes research thoughts and overall framework, and summarizes main innovative contribution of this paper.Chapter Ⅱ refers to literature review. This chapter sorts out domestic and foreign relevant literature review about relationship between stock incentive and cash dividend policy, summarizes domestic and foreign literature review about influence of stock incentive on dividend policy, and analyzes the literature review related to welfare stock incentive and incentive stock incentive. The analysis and brief summary is made in ending part of this chapter.Chapter Ⅲ refers to concept definition and institutional background. It firstly defines the difference of related concepts, such as stock option and restricted stock, and then analyzes the background of Chinese stock incentive and institutional background of dividend policy, and finally explains the formulation process of stock incentive scheme in details.Chapter Ⅳ refers to theoretical analysis. It explains the correlation between stock incentive and dividend policy from the theoretical perspective such as power of management layer, dividend signal transmission theory and price illusion assumption, and then analyzes the factors influencing implementation of stock incentive as well as welfare effect.Chapter Ⅴ refers to empirical test and analysis on relationship between stock option and dividend policy. It firstly proposes research hypothesis and theoretical model, and then carries out strict data screening, and selects listed companies which select stock option as their incentive method and have implemented it in2006-2012as research sample group, and there are totally496samples. Through industry and scale contrast, the matched sample group is selected; finally, there are totally992samples selected. After matched sample T checking and relevance analysis, the multiple regression analysis is utilized to analyze the influence of implementation of stock option on cash dividend and stock dividend, and a conclusion of positive correlation is made. At the end, a robustness test is made.Chapter Ⅵ refers to empirical analysis on difference in dividend policy between welfare companies and incentive companies. This chapter firstly proposes research hypothesis and theoretical model according to theoretical deduction. The exercise performance assessment index designed according to incentive scheme is used to measure managers’power, and this is taken as principle to divide welfare draft and incentive draft to research the difference of their dividend policy, so as to further deepen the influence of stock incentive companies on dividend policy.Chapter Ⅶ refers to conclusion, enlightenments, and shortcomings. The main research conclusions of this paper are shown as below:This paper makes use of matched sample T checking and least square method regression analysis to research the influence of listed companies’ implementation of stock option incentive plan on corporate dividend policy, and the conclusions are shown as below.(1) The stock option incentive of listed companies has obvious positive influence on cash dividend payment level. Under the institutional background that the exercise price can be reduced via dividend distributed from the protective stock option, the listed companies in which the stock option incentive is implemented have stronger power to distribute cash dividend; before the managers become shareholders, they can make use of policies to reduce exercise price through improving cash distribution amount and realize immediate interests, so as to lay a good foundation for obtaining additional incentive interests in the future. Besides, the fact that the cash dividend is a favorable signal to stock price in Chinese capital market at present is also utilized.(2) In terms of influence of stock option on degree of stock dividend, listed companies’implementation of stock option incentive has obvious positive influence on degree of stock dividend. This is because the management layer of listed companies carrying out stock incentive scheme makes use of reasonable rules of stock incentive to know that the exercise price can be directly reduced through improving stock dividend level, thus making the stock option they hold appreciate and increasing the realization probability of their stock option. Besides, it is able to enjoy excess earnings brought by stock dividend through price illusion assumption, thus the phenomenon of excessively high transfer of incentive companies happens, especially the behavior that the option incentive companies still implement great number of stock dividends under the condition of poor self-transfer ability.(3) Finally, the exercise performance assessment index designed according to incentive scheme is used as principle to divide welfare draft and incentive draft and make further differentiation in companies with incentive implemented; the same conclusion is still made in terms of divided policy. The result show that the managers of welfare incentive companies actually have greater power to influence dividend policy; they will formulate dividend distribution scheme which conforms to their own interests, that is, improving corporate stock dividend and cash dividend level. The research of this paper provides new research perspective for dividend agency theory under Chinese institutional background, demonstrates theory of managers’power, and further enriches and perfects literature about option incentive and dividend research. Under immature market, the management layer of listed companies will make use of market efficiency to distribute stock dividend for their private interests, which proves that the market environment can influence corporate formulation of financial policies to certain degree.There is something innovative made in this paper. Firstly, this paper attempts to take the specific target--stock option in stock incentive-as research objective to explore the difference of corporate dividend policy. China mainly has3kinds of incentive targets:stock option, restricted stock, and stock appreciation right; the former2incentive targets are main incentive targets. Carter (2007) found that there is great difference in influence of difference incentive means on dividend policy; for example, except for restricted sales, the restricted stock has no influence on cash bonus. However, the stock option is completely different; when the companies distribute cash dividend, the quantity of option obtained by senior management will increase with the increase of amount of cash distributed by companies, and the exercise price of stock option will decrease accordingly, and there is no doubt that it will more conform to managers’interests. Secondly, this paper firstly measures incentive degree; the stock incentive degree can directly reflect managers’profit-seeking motivation; the larger proportion of stock option granted to management layer is, the stronger the motivation of obtaining non-struggling incentive profit through dividend policy is. The previous literature adopts the dummy variable "whether it is stock incentive" as explanatory variable, but gives no consideration on degree; this paper makes use of proportion of stock incentive in capital stock as explanatory variable to carry out robustness test, which can better explain their relationship. Finally, the stock incentive mainly connects stock performance with managerial remuneration; the senior management of companies have the motivation to obtain excess earnings through stock price manipulation so as to make stock incentive as a part of their remuneration welfare, and the means include profit management and manipulation on formulation of incentive scheme, etc. The stock incentive includes welfare effect and incentive effect; the former has a weak incentive degree, and the managers’self-serving behavior is more obvious. Therefore, according to division of incentive degree, this paper tests the difference of dividend policy between welfare companies and incentive companies, especially the innovation on relationship with stock dividend, which further deepens the mainline research of this paper.This paper gives an outlook for further research direction in the future. Firstly, the management layer of partial companies has extremely large power, and it even goes beyond board of directors or join hands with them to make use of their power to design a compensation structure favorable to them, such as stock option; the management layer with large power has more strength to design out the welfare remuneration they want. The option incentive endows them a channel, through which they can make use of profit management and other opportunistic behavior to add option value. This paper gives no consideration on influence degree of management power on dividend policy, as well as damage degree of self-serving dividend policy adopted by managers on shareholders’interests; they are limitations of this paper and need to be further studied. Secondly, the limitations of this paper also include revenue factor. The revenue factor is a link which can’t be ignored in dividend distribution, but we give no consideration on the interactive influence of this factor on dividend policy of listed companies. Finally, this paper researches the influence of stock option incentive on stock price, and carries out research through comparison on horizontal matched sample group, for the horizontal comparison is more convincing. However, if it is able to combine with own situation to carry out longitudinal contrast, divide the dividend policy of companies which implement stock option incentive into before-implementation group and after-implementation group and make grouping comparison based on year, we can observe a changing curve based on the situations of those companies, which will make the result become more convincing.