Study On Government Intervention, Equity Incentives And Its Impact On Firm’s Performance

Nowadays, in order to effectively address the principal-agent problem, many companies are adopting the equity incentive approach. Equity incentive has become an important measure of modern enterprises to maintain sustainable development. In this context, we propose the following questions:what’s the main constraint of equity incentive behavior of Chinese listed companies? What’s the effect of equity incentives on performance of Chinese listed companies?Firstly, on the basis of concept definition and pattern analysis of equity incentives, this thesis discusses the theoretical bases of equity incentives, and examines the status quo of equity incentives in China. Then, this thesis constructs a conceptual model of government intervention, equity incentives and corporate performance, and analyzes the relationship between government intervention and equity incentives, and relationship between equity incentive and corporate performance, and puts forward some corresponding hypotheses.Secondly, taking advantage of Chinese listed companies which plan to implement equity incentives, this thesis empirically examines the relationship between government intervention and equity incentives of listed companies, and the relationship between equity incentive and corporate performance. By conducting regression analysis with econometric methods, the main results are as follows.(1) Government intervention has a negative impact on equity incentive behavior of Chinese listed companies. The stronger the government intervention, the lower the level of equity incentives of Chinese listed companies. The results show that the introduction of equity incentives in China has its special institutional context, multitask of managers in Chinese listed companies affects the strength of the equity incentive. The presence of government intervention makes listed companies not exactly a value maximizer, which leads to no strong incentive to take equity incentive.(2) The equity incentive has played an active role in promoting performance of Chinese listed companies. The company’s operating performance was significantly positively correlated with equity incentives, which obviously achieved the purpose of promoting the performance of Chinese listed companies. The results show that, even though China’s capital market is still not mature enough, the stock market value still could reflect the company’s true operating performance, which leads to the effectiveness of equity incentives.Finally, based on the theoretical and empirical results, we propose some suggestions to improve mechanisms of equity incentives in China. Specifically, it’s necessary to weaken government intervention in equity incentives mechanisms, and intensify capital market and talent market. Furthermore, the companies should standardize internal governance structure, and strengthen their performance evaluation standard.