Research On Effects Of Equity Incentive On Corporate Performance

Firms can transfer some incentive equity to their managers in order to make them become owners of the firm,and then both the owners and managers have the same interests so that it can relieve the principal-agent problem and improve the corporate performance.Although the equity incentive has behaved very well in the developed countries,the benefits of incentive equity in China remain to be explored thoroughly because of Chinese special circumstances.Equity incentive has drawn the attention of both academic circles and business circles since it was introduced to China in 1990s.In spite of numerous studies on equity incentive,there is still a lack of study in a complete research frame where it firstly studies if practicing equity incentive can improve the corporate performance and then studies how the contract elements of equity incentive influence the corporate performance.This study may provide some suggestions to the firms practicing equity incentive.This thesis is made up of the following six parts:The first is the introduction,introducing the background and significance of the study,together with its contents,structure arrangement and relevant method and concepts.The second is the literature review,reviewing the related literatures home and abroad,summarizing how the equity incentive affects the corporate performance.The third is the theoretical analysis,in the view of Principal-Agent Theory,Human Capital Theory,Incentive Theory and Transaction Cost Theory,supporting the empirical research theoretically based on two issues,namely whether equity incentive affects corporate performance and how contract elements of equity incentive affect corporate performance.The next two parts are empirical respectively,study design and empirical analysis.The last is the summary,coming to conclusions,also providing suggestions relatedThe study has come to the conclusions stated as following.There is a positive relationship between equity incentive and corporate performance,and it means that companies can practice equity incentive to improve the corporate performance.There is a positive relationship between the strength of equity incentive and corporate performance and no prominent relationship between the type or validity of equity incentive and corporate performance,and it means that companies can improve the corporate performance by increasing the strength.Also,this thesis provides some suggestions such as strengthening the construction of capital market,establishing the idea of practicing equity incentive,emphasizing the understanding of the nature of equity incentive,paying attention to the other possible factors,setting the strength level of equity incentive reasonably.The main innovation of this thesis is stated as followed.First,according to a complete research frame,the study firstly test whether the equity incentive can affect corporate performance,and then test how the contract elements of equity incentive,namely type,validity and strength,affect the corporate performance,instead of using the strength level to replace variable whether the company practices equity incentive or not.Next,considering the endogenity,this study uses the two stage least square method as robustness test to ensure the reliability of the results.