Research On The Relationship Between Equity Incentive And Investment Efficiency

Equity incentive essentially incentives managers to be "masters", sharing profits and risks with shareholders, and incentives managers to maximize company value as managers’ goal. The inevitable path of increasing company value is to improve the efficiency of investment, which is the foundation of company development and accumulation of cash flow. To investigate whether the equity incentive incentives managers to maximize company value as managers’ goal, the paper chooses investment efficiency as a sign and studies the relationship between equity incentive and the investment efficiency through grouping equity incentive into “incentive” and “welfare” type. Based mainly on that the Growth Enterprise Market(GEM) lists many companies of “High growth, high content of science and technology and the new economy, new services, new agriculture, new materials, new energy, new business”, in which the incentive effect of human capital is very important for company’s operating performance, thus selecting the GEM listed companies as research samples. According to overinvestment and underinvestment in these companies, there could be differences in the influence of equity incentive type. Therefore equity incentive plan should set up accordingly, in order to better meet the demands of the parties.The paper selects the data of the GEM listed companies which have implemented equity incentive plans between January 1, 2010 to December 31, 2013 as incentive samples. The investment-related data of 133 implemented equity incentive plans from the year of first implement announcement date to the year 2014, are regarded as equity incentive company observations. The paper does the symmetrical elimination to the residual and places them as ineffective investment. In the model of equity incentive and investment efficiency, the paper considers grouping equity incentive according to equity incentive threshold. With reference to other scholars, the paper classifies equity incentive as “incentive” and “welfare” type considering the vesting or unlocking conditions. The paper explores differences of influence on the inefficient investment in two situations--merely considering grouping, and considering grouping with awarded price at the same time.In this paper, the empirical analysis presents the following conclusions:(1) The implementation of equity incentive produces obvious inhibition to overinvestment, while the relief to underinvestment is limited in the GEM listed companies.(2) The paper classifies equity incentive as “incentive” and “welfare” type considering the vesting or unlocking conditions. Controlling other factors, the result is incentive type could inhibit more overinvestment than welfare type, while presents no significant differences from welfare type in underinvestment.(3) Awarded price of incentive type presents larger influences on overinvestment than awarded price of welfare type.(4) When awarded price is lower than a certain price, the overinvestment of incentive type is fewer than the overinvestment of welfare type. When awarded price is higher than a certain price, the overinvestment of incentive type is more than the overinvestment of welfare type.In the end, based on the empirical conclusions, the paper makes suggestions about the equity incentive plan, corporate governance environment, and supervision management, for listed companies better implementing appropriate equity incentive plans and improving the investment efficiency, and for regulators better knowing the GEM equity incentive reality and modifying the related regulatory institution.