Wealth Effect Of Equity Incentive In China’s Listed Companies

From our inception of the capital market, a unique dual system was used, resulting in a distortion of tradable interests between two kinds of shareholders. Therefore, the capital market did not play a good role in the allocation of capital. Since the reform of non-tradable shares in 2006, equity incentive plans of listed companies in China really began. After years of development, the number of equity incentive companies has significantly increased and on the development incentive programs have been more mature.This paper is to study whether equity incentives are able to bring income to shareholders the equity of listed companies from both short-term and long-term aspects. For short-term, we use the sample of listed companies that announce equity incentive plan from 2006 to 2013. We found that such announcement will generate significant abnormal returns. Such abnormal returns are significant related to exercise conditions, the subject of exercise and the nature of actual controller. For long-term, we use industry-adjusted ROE and EPS to measure shareholder wealth and find that the year performing would equity incentive will not have a significant increase in performance, but performance will improve significantly after some years. Moreover, the extent of improvement is significantly related to the nature of actual controller, growth, the percentage of motivation and the performance of the company.In this paper, we hope to use the latest data to test whether equity incentives can bring gains to shareholders in both short and long term, and to test what important factors affect shareholder wealth, in order to make certain recommendations.