The Research Of The Impact Of Product Market Competition And Equity Incentive On Firm Value

Product market competition and equity incentives are very important corporate governance mechanisms. As an external mechanism of corporate governance, product market competition have a significant impact on company. It not only can have a impact on firm value, but also can have a significant impact on the equity incentive.Equity incentive is a long-term incentive system, which the owners of company offer to the mangers. On the one hand, Equity incentive can coordinate the conflict of interest between managers and business owners; on the other hand, it could retain management talent by offering managers equity incentives.This paper attempts to research how product market competition and equity incentive affect firm value, as well as the relationship between product market competition and equity incentives. Previous scholars have done some research on the relationship between firm value and equity incentive, but ignored that product market competition have a significant impact on firm value. In fact, there is a very complex relationship between product market competition, equity incentive and firm value. On the one hand, product market competition, which can apply taking over and liquidation pressure, supervision to managers, urging managers to work hard, have a substitution effect on equity incentive; on the other hand, competition in the industry will have the negative impact,making profit margins reduce,on corporate value.Through theoretical and empirical research, this paper attempts to explore how product market competition, equity incentive influence firm value.Contents of this paper has six parts, the part one is the introduction, describing the research background, theoretical and practical significance, research methods and research content and research framework and define the core concepts. The second part is the basic theory and literature review, on the one hand, basic theory of product market competition and equity incentive will be described and explained; on the other hand, the relationship between product market competition, equity incentive and firm value literature reviews in order to establish a research model and put forwardhypothesis. In the third part, on the basis of a literature review research model was constructed and put forward five hypotheses. The fourth part is the design of research,through collecting listed companies as samples which implemented equity incentive during 2012-2014, choosing method to measure research variables, and building regression models. The fifth part is empirical analysis, including correlation analysis,regression analysis of hypotheses and determining whether the hypothesis holds. The sixth part is the conclusion and policy suggestion, based on theoretical and empirical analysis studies, to draw conclusions and make some policy recommendations. The last one is explaining the lack of this paper and prospects.Through theoretical and empirical analysis, we draw following conclusions:①Product market competition have a negative impact on firm value. Their relationship is negative correlation that as intense of competition increases, the firm value reduces; ②Equity incentive and enterprise value is positively correlated. With the increase of equity incentive, firm value will increase; ③Product market competition can substitute equity incentive,affecting firm value; ④Both product market competition and equity incentives have a significant impact on firm value.Based on the above findings, we believe that the competitive environment of companies is not the more intense the better. For the government’s industrial policy, it should remain moderate competition, preventing vicious competition, creating a fair,legal living environment for enterprises. For enterprise incentive system, it should pay attention to the role of equity incentive. According to the situation of company, the management equity incentive is conducive to enhancing enterprise value. Although the product market competition have substitution effect on equity incentive to some extent, yet could not completely replace internal incentives. Therefore, the company should implement scientific management incentive system according to the different market competition environment. In view of the objective conditions, this paper have are many shortcomings, and I hope to do more research and exploration in the future.