The Timing Of Public Disclosure Of An Equity Incentive Plan By Listed Companies In China

Many theoretical and empirical researches have revealed that equityincentives have a significant positive effect in solving the principal-agentproblem and promoting the company performance. However, manyscholars also have pointed out that equity incentives are likely to inspirethe management to take opportunistic behaviors. Then, the managementtends to pursue the maximization of their personal interests rather than themaximization of the corporate value. These opportunistic behaviorsinclude earnings management and timing choice. Even in the relativelymature and well-regulated western stock markets, many scholars haveproved that there exists a great amount of management’s opportunisticbehavior. To introduce and widely exert the equity incentives in Chinastock market at the current development stage, its effectiveness hasaroused suspicion from many scholars.The article selects245listed companies in China which for the firsttime disclosed an equity incentive plan from January2008to December2012, and tends to examine by empirical research whether the managementwill use their information advantage, especially the information advantagein earnings information to select the timing of the announcement date ofthe equity incentive plan.The empirical results show that: even without considering theshort-term market effects brought by the equity incentive itself, theannouncement of equity incentive plans are more likely to occur at the lowpoint of stock prices. Further study shows that the management would usetheir information advantage of the company’s quarterly earnings to choose the timing of the equity incentive plan, which is at1%level significant.Therefore, the article believes that the equity incentive system whichis originally designed to inspire the management to improve the companyperformance would become a rent-seeking machine of the management ina not well-regulated market. Thus, the intention and effectiveness forChina listed companies to widely exert the equity incentives is of dubiousvalidity.