Examination Of Executive Equity Incentives Of Listed Firms In China: Perspective From Relation Between R&D Expenditures And Stock Returns

R&D investment project has the characteristics of high-risk and long cycle,These characteristics of R&D investment project will let the senior executives circumvent the R&D project investment which could bring high expected return to the company. The myopia of the executive will damage the long-term interests of shareholders and hamper the expansion of company. In order to make executive interests and shareholders interests convergence, Shareholders awarded executives with equity to change executives’ objective function and solve the principal-agent problems between shareholders and executives. Existing researches on R&D investment, stock expected return and Executive incentive are splited. This paper based on the perspective of the relationship between R&D and stock expected returns to test the role of executive incentive. In fact, if executives incentives will help easing the principal-agent problems between shareholders and executives, promoting the enterprise R&D investment, executives incentives will strengthen the relationship between R&D investment and expected return。 The relationship between R&D investment and expected return can be a new perspective to examine the effects of executive incentive.This paper uses the Shanghai and Shenzhen listed firms during 2007 and 2013, except for the financial industry. First, descriptive statistic the relationship between executive incentive(executives shareholding, incentive plans), R&D investment, expected return and the other important indices of the enterprise. The results show that the company with larger intensity of R&D having higher stock expected returns and CEO share-holding rate. The company with executive incentive has high intensity of R&D investment and stock expected returns.Secondly, compare whether the company enforce equity incentive, before and after equity incentive, executive incentive will promote the relationship between R&D investment and stock expected returns. Executive incentives will promote the senior executives to take R&D investment. Regression results show that,, to a certain extent, executive incentive solve the principal-agent problems between shareholders and executives, the executives incentive can strengthen the R&D investment and stock expected return positive relationship.