Study On The Influnce Of Equity Incentive On Inefficient Investment

The company gives certain shares to the managers,aims to encourage managers to operate companies with the target of maximizing shareholders value by sharing the future benefits.Also it may ease the conflict of interest between shareholders and management layer,and it may reduce the agency cost.Investment is the foundation of the company's growth,investment efficiency is directly related to the company's future growth and value performance,therefore to affect the personal income of executives.Thus,the effect of equity incentive on managers' investment decisions has been widely concerned at home and abroad.The optimal contract theory holds that equity incentive has a negative effect on inefficient investment,and equity incentive has been called "golden handcuffs".However,there is not only incentive motivation,but also welfare motivation.The latter has the characteristics of lower exercise conditions and lower exercise price,so the managers can obtain personal benefits easier.Previous studies have shown that welfare motivation of incentive has exacerbated the agency problem between shareholders and managers.This paper attempts to explore whether equity incentive can effectively restrain the inefficient investment,and within different motivations,what kind of influence it will have on the inefficient investment.This paper takes a sample of the GEM listed companies which applied the equity incentive during 2010-2016,then build a multiple regression and take the residuals of Richardson model as the substitution variable for the investment in-efficiency.First,the paper tests the effect of equity incentive on inefficient investment;second,this paper divides the exercise conditions of equity incentive into incentive or welfare motivation,and explores the impact of different equity incentives on in-efficiency investment.The empirical study proves that:(1)the equity incentive can effectively restrain the under-investment,but aggravate the over-investment.(2)compared with the welfare motivation,the equity incentive based on incentive motivation has intensified over-investment of enterprises,on the other hand,can effectively alleviate under-investment.Based on the empirical results,this paper respectively provides policy advice to the listed companies and regulatory authorities.It's suggested that,the listed companies should,on the one hand,make clear the incentive motivation,set up a reasonable and effective incentive mechanism from the aspects of incentive condition designment,incentive validity period,award quantity and so on;on the other hand,establish a good corporate governance environment and audit supervision mechanism to ensure equity incentive can achieve thedesired effect.Also it is suggested that the supervisors should improve the information disclosure system of listed companies' equity incentive,promote the social masses to supervise the market operation,and exert the market restraint mechanism function of capital market.