The Study On Opportunistic Timing Of Information Exposure Before The Announcement Of Equity Plan

Since the Promulgating the Measures for the Administration of Equity Incentive Plans of Listed Companies (for trial implementation) was released by the China Securities Regulatory Commission in January1st,2006, equity incentive mechanism has gained a widespread application and development among domestic listed companies. With an original intention to reduce agency costs between managers and shareholders, this mechanism is proved double-edged by many foreign theories and practice for the reason that while the agency cost is reduced to a certain degrees, managers are provided with a chance to implement self-benefited opportunistic behaviors. Because of an informational superiority that mangers can get equity incentive plans before announcement, they can control the time and extent of information disclosure, thus effecting company shares to accomplish a lower exercise price. Meanwhile, some factors such as a late start of Chinese market economy, which leads to unstructured organization inside companies and incomplete regulation outsides, have also contribute to those self-benefited behavior. In this article, with the case of370sample companies exposing stock option incentive bills from January1st of2006to November31st of2013are studied three major aspects that whether there exist opportunistic behaviors of information exposure in China, that whether such behaviors effect the company share before and after announcing the bill and that whether the company utilizes earning management as means of information exposure.This article will provide two distinguished perspectives of methods, namely, both year-on-year(YoY) and MoM comparison, to compare the net profit growth rate in the newest single-season report with the one in former year, thus determining whether the exposed information is good or bad. As the research indicates, with contrast of both YoY and MoM growth rate in net profit, the listed company tends to expose the bad news before announcing bills and to delay the good news, which means that managers with opportunism choose the time of announcing bills before.Meanwhile, setting0as the time of releasing plans and t1, t2of releasing the most recent single-season report before and after, respectively, the cumulative excess return before and after release is calculated to showcase the influence of information exposure on company stock price. The study shows that cumulative abnormal returns are minus, though not obviously, from t1to0and positive from0to30days after t2, especially significantly from t2to30days after t2. This proves that the opportunistic conducts of information exposure do influence the stock price and are beneficial to accomplish a lower exercise price.Furthermore, also analyzed is earning management of former four season reports before releasing plans as well as one season report after. The analysis demonstrates a general existence of forward earning management among domestic listed companies. However, the manipulation of accrued profit in former four seasons has a tendency to decrease, resulting in a least profit in the last season, and the profit after release comes to rise. This phenomenon indicates that the listed companies utilize earning management to realize the goal with opportunism in the process of exposing information.Finally, based on the fact that validity of stock options incentive plan can be effected by the opportunism of optional information disclosure, some suggestions, to perfect stock option incentive mechanism, are put forward ranging from corporate governance, information disclosure to external regulation in this article.