Research On The Relationship Between Equity Incentive And Corporate Performance

The typical feature of modern corporations is the separation of ownership and management rights that result in the agency problems. Both information asymmetry between the principal and the agent and incomplete contract that generates moral hazard and adverse selection. In order to solve the principal-agent problem, the listed company explore equity incentive. The system of equity incentive unify individual utility and business objectives, which alleviates the conflict of interest in the principal-agent relationship.This study first discusses the causes of divisiveness on previous research conclusion, we find the endogeneity of the equity incentive is one of the important cause leading to divisiveness. Then we analyze the equity incentive and corporate performance of two-way causality and reveal the endogeneity problem. This paper attempts to use the propensity score matching (PSM) to resolve the endogeneity problem, and to find whether the equity incentive has a significant impact on corporate performance using the listed company data from 2006 to 2014. We also use Rosenbaum’s bounds estimates to test robustness of the average treatment effect (ATT), which finds the presence of unobservable factors will not cause the bias of estimated results, and thus confirms the conclusion that company’s equity incentive will enhance the performance. On this basis, this research subdivide samples and conduct detailed research. Findings shows that the implementation of equity incentive in state-owned companies could not significantly enhance the company’s performance and that the effect of higher growth listed companies is better than the low growth of listed companies. However the ownership concentration, the size and business risks of listed companies could not obviously affect the equity incentive effect. Besides that, the restricted stock option is superior than option Incentive.