The Research On The Effectiveness Of Management Stock Option Incentive Of Different Listed Companies In China

Since 2005, CSRC Released a series of documents which regulate the equity incentives such as Administrative Measures For Equity Incentives of Listed Companies (Trial). With the perfection of related laws and regulations and Chinese Stock market, the equity incentive for the management of China’s A-share market has stepped into a fast growing era. From 2006 to the end of 2011, about 315 listed companies of Shanghai and Shenzhen have revealed their plans of equity incentive. Thus, it is significant to research on the effectiveness of the management of equity incentive in China’s capital market.At the initial stage of building China’s stock market, the majority of the state-owned companies became listed companies by distributing stocks. However, with the development of market economy and the transformation of functions of government supervision organizations, those expanding private companies can raise funds by being listed on the market and develop very quickly. The establishment of small and medium-size enterprise market and growth market has highly enriched the structure of China’s capital market. In addition, new industries have strongly impacted the traditional ones. Therefore, it is necessary to compare and analyze the differences between all the listed companies when doing this research.Current main types of the equity incentive of China’s A-share market vary from stock option, restricted stock to stock appreciation rights, among which equity incentive is the most popular one. This essay categorizes the listed companies into 3 groups, state-owned holding listed companies and non-state-owned holding listed companies, traditional and new industry, and main market, small, medium-size and growth enterprise market and focuses on the comparative study on the effectiveness of stock option.Samples including announcement of the listed companies and other related information as well as EVA and ROE are used as standards to measure the value of companies. "the difference between the EVA return of sample firms and industry average"and"the difference between the ROE return of sample firms and industry average"are used as explained variables to evaluate the effectiveness of incentive, while "the expected return intensity" and"the proportion of equity incentive"are chosen as explanatory variable. We try to build up an appropriate econometric model to verify the effectiveness of the management stock option incentive in China’s different types of listed companies.The conclusion of this research shows that equity incentive is neither effective to add value to state-owned holding listed companies nor to non-state-owned holding listed companies. For listed companies in growth enterprise market, equity incentive is apparently proportional to the companies’ growth rate (the growth rate of company’s total value). For listed companies from new industry, the expected return intensity is obviously proportional both to the development (the growth rate of company’s total value) and profitability (the utilization efficiency of shareholders).