Equity Incentive And Corporate Risk-taking

In recent years,we have witnessed a great progress in economic quality promoted by policies in China.At the same time,our economy has entered a new era.Along with the rapid development of China's securities market,there is a tendency that more and more companies are seeking opportunities for going public to maximize their values.Under this background,how to adapt to the quickly changing economy but also achieve long-term development has become a common problem faced by Chinese companies.Based on the principal-agent problem,due to information asymmetry,inconsistent benefits between the principal and the agent as well as different levels of endurance of risk,the company's owners and managers make different decisions.Compared with company's owners,managers tend to have relatively low tolerance for risks,signifying the existence of principal-agent problem.The risk-taking behavior of an enterprise represents the choice behavior of a high-risk project in the investment decision-making,which is characterized by high-yield and long-term.Enterprises can better grasp the opportunity through the risk-taking behavior and pursue maximized value.The Non-tradable Share Reform of Listed Companies in China beginning in 2005 has brought new opportunities and challenges to the management of listed companies.As the pillar of China's national economy,the state-owned enterprises have proved to have more risk-aversion behaviors and principal-agent problems.Being in a transitional period,reasonable risk-taking activities of companies can help promote the development of our economy.While problems arising from acts like principal-agent and risk aversion are just not conducive to its long-term development.As a long-term incentive mechanism,the management equity incentive policy has played a good role in alleviating some of the above problems.This article mainly analyzes this issue combining theoretical analysis with empirical analysis.For one thing,based on principal-agent theory and incentive theory,this paper theoretically studied the relationship between equity incentives and risk assumptions of listed companies in China and made reasonable assumptions to study whether the nature of property rights can affect the relationship,taking the special national background into consideration.For another,from the empirical point of view,this paper selected the panel data of A-share listed companies in Shanghai and Shenzhen stock markets during the period of 2006-2016 in China and established a multivariate regression model for quantitative analysis.Finally,some suggestions were given according to the results obtained from relevant analysis.Compared with foreign research,related domestic research is very limited.As a result,management equity incentive and risk-taking behavior is a new entry point.There are mainly two conclusions.On one hand,there is a positive correlation between equity incentives and risk exposure.That is to say,increase in the level of equity incentives of management can help the management and shareholders have more shared interests and reduce the effect of principal-agent problem to achieve long-term benefits.On the other hand,this paper found that the nature of property rights will negatively affect the relationship between equity incentives and risk exposure.Compared with non-state-owned property rights enterprises,the equity incentive of the management of state-owned enterprises shows relatively small effect on risk exposure.In summary,based on the background of implementation of equity incentive plan after the reform of the equity structure in China,this paper studied the relationship of equity incentives and risk-taking,and demonstrated that the nature of property rights can affect this relationship.This paper helps enrich related studies,raise companies' awareness of potential risks of equity incentive policies and provide reference for state-owned enterprise reforms.