Research On Implementation Status And Incentive Effect About Equity Incentive Of Chinese GEM Listed Companies

Modern enterprise realizes the separation of ownership and management, which result in principal-agent problem. Equity incentive is one of the effective ways to solve the principal-agent problem.Owners grant a part of the company’s shares to the management. When the company’s performance achieves the vesting conditions, the incentive objects can exercise to obtain the benifits. In this way, managers can participate in the decision-making and the distribution of interests in the enterprise, which make managers focus on the long-term development of company and growth of company’s value.Equity incentive has been widely used in western countries since 1970 s, while it is practiced in China much later. China began the reform of the shareholder structure since 2005 and then China Securities Regulatory Commission promulgated the “Measures for the Administration of Equity Incentive” and “Equity Incentive Relevant Memorandum No. 1-3” between 2006 and 2008, which means the policy system of equity incentive was basically formed. The true consequences of equity incentive are starting to emerge.Chinese GEM board was set up in Oct 2009. More and more small and medium enterprises become listed on this board, which are characterized by high-tech and high-growth. In order to retain and motivate talented people, more and more companies listed on GEM luanced equity incentive plan. In this background, study of incentive effects for GEM listed companies has a strong theoretical and practical significance.At first, this paper reviews the research on equity incentive of domestic and foreign scholars. Then reveals the reasons why compnies implement equity incentive based on the theoretical basis of equity incentives. Then, we analyze the implementation status of equity incentive for GEM listed companies so that we can know the details how they implement equity incentive. At last we use the method of empirical and case studies to analyz the effect of equity incentive based on the financial performance.Based on the empirical research, in terms of equity incentive effect, we find that the implementation of equity incentive is helpful to improve the performance of the company. In terms of equitiy incentive factors, influence of incentive rate on company performance is not significant, the incentive effect between three differect incentive modes(stock option, restricted stock and compound mode) is also not significantly different.Based on the case study of Letv Company, we find that equity incentive, to some extent, has played a positive impact on the performance of company. Letv’s equity incentive plan also provides some experience and inspiration to similar companies. For example, the company may use compound incentive mode according to its own actual situation, choose a good time to start incentive plan, add the comparison benchmark of the same industry in the vesting conditions, etc.We hope our research can provide useful ideas and suggestions for GEM liested companies to optimize the equity incentive plan and get better effect.