Equity Incentive, Agency Costs And Investment Inefficient

In modern financial problems, the investment efficiency is always the emphasis of scholars. However, because of the existence of the agency relationship and information asymmetry, adverse selection and moral hazard will appear when management deviates from the owner for their own interests. And it will cause inefficient investment. If owners want to reduce inconsistencies in the interests of management and shareholders, we need to design an effective incentive system. Equity incentive is the system that owners give management a certain number of stocks. It allows management to share the owner’s interests and risk. Equity incentive can reduce agency cost and inhibit inefficient investment. The paper takes equity incentive、agency cost and inefficient investment into a unified analytical framework. Author will take agency cost as mediating variables and will test and verify that whether equity incentive can inhibit inefficient investment. Meanwhile, companies listed on GEM are different with Companies listed on Main Board because of its Specific environment for the growth and unique business direction. Therefore, the paper studies the relationship between equity incentive and inefficient investment based on the GEM. If equity incentive can inhibit inefficient investment, author will test whether mediation effect exists.The purpose of this study is to test implementation results of equity incentive on the GEM, and test whether equity incentive can inhibit inefficient investment. This study has six parts:The first part is introduction. The second part sums up relevant theory and literature about equity incentive、agency cost and inefficient investment. The third part analyzes the status quo of equity incentive on the GEM with the standardized analytical methods. The fourth part builds the econometric model to analyze the inefficient investment on the GEM. The fifth part tests whether equity incentive can inhibit inefficient investment and whether mediation effect exist; and further test whether different models of equity incentive have different affect for inefficient investment with the empirical analysis. The sixth part is empirical conclusions and targeted policy recommendations.It reveals that the specific impact between equity incentive and inefficient investment with the financial date from 2010 to 2012 for empirical research. And test and verify that whether agency cost exists. The result shows that:equity incentive can inhibit overinvestment.But inhibition effect is not obvious for underinvestment. Different patterns of equity incentive have different inhibition effects for inefficient investment. The inhibition effect of option incentive is stronger than stock incentive’s. The mediation effect of Agency costs existed.