Stock Incentive?Managerial Power And Company Performance

As a long-term incentive system,stock incentive system has been used by more and more listed companies in China.Companies' original intention of implement stock incentive is to improve workers' working enthusiasm by link their payment with company performance,therefore,the interest of operators and the shareholders tend to be consistent,so as to promote enterprise performance,and finally maximize the interests of shareholders.According to the optimal contract theory,stock incentive system is one of the effective means to solve the agency problem in modern companies where ownership and management right are separated.However,the problem that executives' stock incentive payment is broken away from enterprise performance has been revealed because of executives' big payment which was exposed again and again.Not only is the incentive effect of stock incentive system being questioned,but also the adverse effects of managerial power on the stock incentive being highlighted.Is the stock incentive system the effective means to solve the agency problem or the source of the problem? Managerial power theory holds that stock incentive is a way of management rent-seeking.The effect of stock incentive system is not as good as the assumption of the shareholders.As a result,whether the implementation of stock incentive can promote corporate performance,as well as how can managerial power influence the implementation of the stock incentive are both the issue of concern.Actually,the optimal contract theory and managerial theory are not mutually exclusive,they both can explain the complex effect of stock incentive.Based on the optimal contract theory and the managerial power theory,this paper explores the impact of the implementation of stock incentive system on corporate performance,and the impact of managerial power on stock incentive-performance sensitivity,so as to provide some reference for the improvement of the governance mechanism and stock incentive system of listed companies in China.To this end,this paper proposes two hypotheses:(1)the implementation of equity incentive can significantly improve corporate performance,(2)the greater the management power,the weaker the correlation between stock incentive and enterprise performance.To verify the hypotheses,this paper conductsempirical research.Firstly,the A shares of listed companies who announced the implementation of stock incentive for the first time during 2010 and 2013 have been chosen as the study group.Secondly,the propensity score method was used to match a control group that did not implement stock incentive in the year of the test for the study group.Therefore,the problem of endogeneity could be effectively reduced in the sample selection.In this paper,we use the return on equity which has been adjusted by industry average as the substitute of firm performance.The principle component factor of seven indicators is used to evaluate managerial power.The seven indicators are: duality of chairman and general manager,whether as internal directors,tenure,equity decentralization,managerial ownership,the proportion of independent directors and board directors.In regression analysis,the difference-in-difference model was used to test the effect of stock incentive on corporate performance and the influence of managerial power on the relationship between the two.The results show that: firstly,the implementation of stock incentive can significantly improve the performance of enterprises,stock incentive is one of the important factors to improve the performance of enterprises.Second,the management of power has a significant negative effect on the relationship between stock incentive and enterprise performance management.The greater the power,the weaker the correlation between the stock incentive and corporate performance.The implementation of the stock incentive system in companies whose managerial power is larger cannot significantly promote enterprise performance.The above conclusions show the effectiveness of stock incentive system and the negative effect of management power.The optimal contract theory and managerial power theory are not mutually exclusive.At the end of the paper,some suggestions are put forward from the following aspects: setting up a sound performance evaluation system,strengthen the supervision of management power,improve the external manager market.