The Study Of Executive Stock Option Incentives' Effec On Corporate Risk-taking And Behaviors

The principal-agent theory refers the loss of corporate value caused by the separation of ownership and management rights as the agency cost,and proposes the benefit convergence hypothesis that the implementation of equity-based incentives for managers can effectively reduce information asymmetry and increase incentive level.The optimal contract theory and human capital theory also point out that the mainly purpose of designing compensation plans for companies is to eliminate agency problems between shareholders and managers,and that higher supervision costs and supervision difficulties should be positively correlated with equity-based incentives.Based on the theoretical basis of stock option incentive,innovation and risk incentive theory point out that the biggest characteristic of stock options is the convex relationship between managers' wealth and corporate performance,which has a positive effect on the incentive for managers to take risk.The stock option incentive can simultaneously provide performance-based incentive Delta and risk-based incentive Vega,which is a type of long-term convex incentive.Based on stock option incentive theory,this paper selects non-financial companies that have announced stock options incentive plans in China's A-share market from 2010 to 2016 as an example to empirically study the influence of stock option incentives on corporate risk-taking,corporate R&D and other investment,and study the influence of stock option incentives on the stock volatility-return relationship.First,examine the impact of stock option incentives on managers' risk-taking,differentiating stock option's performance-based incentive Delta and risk-based incentive Vega to examine stock option's effect on corporate total risk,systemic risk,and idiosyncratic risk.Meanwhile,explain stock option contract design elements Secondly,this paper uses stock volatility to measure total corporate risk,and seperate total risk into idiosyncratic risk and systemic risk.Distinguishing between companies that have implemented stock options and companies that have not implemented stock options to study the influence of changes in their total risks,systemic risks and idiosyncratic risks on stock returns,examining the effect of stock option incentives on the volatility-return relationship.For a leveraged company,the value of the equity is a call option which targets the total assets and is positively correlated with the volatility of the total assets.The volatility of the firm is composed of different business investment behaviors with different risk characteristics.If the stock option incentive promotes managers' risk-taking behavior which helps the company to improve their business levels and create real options with both risks and benefits,the changed corporate risks will have a stronger positive effect on the value of corporate stocks.Finally,studying the impact of stock option incentives on corporate R&D investment and other corporate investment behaviors.Descriptive statistics show that compared with companies that have not implemented stock options,companies that have implemented stock options have more R&D investment which relates to idiosyncratic risks.Compared with companies that have not implemented stock options,changes in total risk,systematic risk and idiosyncratic risk for companies that have implemented stock options specific risks are significantly greater.Further controling of relevant factors,empirical results obtained by using the 2SLS method regression show that companies with stronger growth opportunities,more supervision difficulties,and higher agency cost tend to adopt stronger stock options incentives;Stock option's volatility sensitivity Vega has positive effect on incentivizing managers' risk-taking behaviors,and stock option's price sensitivity Delta has negative effect on incentivizing managers' risk-taking behaviors The effectiveness of stock option's risk-taking incentive depends on the combined effects of the effectiveness of risk-taking and the effectiveness of risk aversion,but it has a clear positive effect on incentivizing managers to assume idiosyncratic risks.In addition,changes in corporate total risk,systemic risk,and idiosyncratic risk have a significant positive effect on corporate stock returns.The implementation of stock options has effectively strengthened the significant positive effects of these three types of risk changes on corporate stock returns,and theincrease of idiosyncratic risk has the most positive effect on corporate stock returns.All these results show that stock options can effectively encourage managers to conduct more R&D and innovation investment and adopt other investment or management strategies that are beneficial to the developing prospects of the company,so as to create real options and play a role in promoting the volatility-return relationship.Further,by choosing R&D investment and corporate investment intensity as representatives of corporate risk-taking behaviors,2SLS empirical test found that stock option's stock price volatility sensitivity Vega has significant positive effect on R&D and corporate investment intensity and such positive effect is stronger in high-tech companies;the stock option's stock price sensitivity Delta has a negative effect on R&D investment and firm investment intensity,but such negative effect does not exist in hi-tech companies;in china,the incentive effect of stock option on R & D and corporate investment intensity depends on the combined effects of the two types of effects provided by Vega and Delta,but stock options implemented by technology companies have a clear and positive incentive effect on corporate R&D investment.