How Equity Incentive Influence The Long-Term Investment Intensity Of Companies

Stock Option Incentive made its debut in earlier1950s in USA and became popular in1970s across the West and then all over the world in1990s as a solution of interests conflicts between the management layer and the shareholder. It aims to align the interests of corporate management and the company owners and to motivate the management layer to focus on long term growth of the company and reduce shortsighted business conducts.In the modern society, the validity of the investment decision directly influences the company’s operating risk, future performance and the realization of enterprise value maximization objective. Moreover, the executives are the persons who have the responsibility to make a reasonable investment decision. Equity incentive as a long-term incentive mechanism which links the interests of shareholders and managers (Jensen, Murphy,1990) significantly affected the investment decision of the executives. However, foreign capital market and legal system are very different from these in China so that we have no idea about whether we can apply foreign research results to domestic enterprises. Besides, domestic research is not too much.Based on the theory of principal-agent theory and incentive theory, we use the data of manufacturing listed companies in2006to2013as study sample to study how equity incentive influence the long-term investment intensity. Different from any other literature, we use the long-term investment include foreign investment and inward investment first.Firstly, this paper reviews the main theoretical basis. Secondly, we review the literature from the three aspects of the impact between equity incentive and inefficiency investment, the impact between equity incentive and the investment of Physical assets, the impact between equity incentive and the investment of intangible assets. Secondly, based on the theory of principal-agent theory and Incentive theory and because of the great differences of investment between all the industries and most of the companies that implement equity incentive are in the manufacturing industry, this paper chose2003-2013panel data of the manufacturing listed manufacturing companies from Shanghai and Shenzhen stock markets of China as research sample, using the empirical research method to analyze how equity incentive influence the long-term investment intensity. This article draws the following conclusions:(1) The companies that implement equity incentive have the greater long-team investment intensity.(2) The companies have the greater long-term investment intensity after implementing equity incentive.(3) The companies that implement difficult equity incentive have the greater investment intensity.(4) The companies that use restricted stock have the greater investment intensity than the companies that use stock option.Finally, based on the analysis on the front of each chapter, we summarize the main findings of this paper. According to specific institutional context of listed companies, put forward on the establishment of an effective management equity incentive plan.