Corporate Risk Under Different Equity-based Compensation

Equity-based compensation incentive is a kind of long-term incentive, which can effectively combine the interests of employees with the interests of the company. It can develop the enthusiasm and creativity of employees to ensure the realization of the company long-term goals. In recent years, equity-based incentive in China is more and more important. On the one hand, the China Securities Commission promulgated the "shares of listed companies’incentive management approach" (Trial) in 2006, listed companies have a clear legal protection. On the other hand, after the economic crisis, in order to stimulate the company’s performance continued ascension, the listed companies have launched equity incentive plan. At the same time, a number of high-tech companies don’t have sufficient cash flow, so the equity-based incentive become a good choice to attract and retain talents, also contributed to the listed companies to launch equity incentive plaaPrevious studies more concerned about the relationship between the executive equity incentives and corporate performance. The relationship between the equity incentive and corporate risk especially risk-taking behavior are less. The strategic risk behavior of executives has a direct effect to the success of the enterprise. Too much risk-taking behavior may result in companies facing bankruptcy or collapse, and less risk-taking behavior is likely to miss many potential investment opportunities. Meanwhile, in the previous studies, the equity-based incentive usually means option incentive, the study of restricted stock is very few. Restricted stock used in China has increased year by year, close to the use of option incentives. In this paper, based on the published data from 2009 to 2012 equity incentive of listed companies in our stock market as the research object, the paper attempt to answer the following questions: What impact of option incentive has on the executives risk-taking behavior and financial risk? How about restricted stock? What is the difference? For traditional industry and high-tech industry, do the effect of equity incentive play the same role?This paper adopts the method of empirical study, research 317 companies with stock options and 172 companies with restricted stock. And the use of SPSS statistical software for analysis and principal component regression analysis found:CEO stock option pay influences risk taking positively and significantly, while restricted stock has no significant influence. Considering the factor of industry, the restricted stock has negative influence on the manufacturing company, but the similar evidence is not found in the high technology listed company. The Remuneration Committee in designing the equity incentives should select the appropriate tool according to the company’s industry and the current risk situation. The result can help us to recognize deeply the use of incentive compensation, which to some extent expands the behavioral agency. Sensible arrangement of stock option and restricted stock has significant practical value.