The Equity Incentive' Effect On The Financial Performances Of High-tech Enterprises

As a long-term incentive mechanism,equity incentive has many advantages of strong operability and high efficiency,which has been proven by many enterprises and widely applied in the world.In China,the history of equity incentive is not so long.But since 2005,a series of related laws and policies have been released.Our equity incentive system has been constantly improving and the practices of the mechanism are more mature.From 2011,every year there are more than 100 companies announced the equity incentive plan,and the number of enterprises applied the mechanism reached 257 in 2016.The phenomenon indicated that many listed companies have needs that use equity incentives to have better performance.However,some companies have to stop the process of the implementation of equity incentive plan,because the plans of equity incentive are not reasonable and even some companies have not yet started.Even if some enterprises finished the processes of equity incentive plan,the effect is various,which requires more studies to research the reasons.The main research questions in this paper are as follow:firstly,whether equity incentive can really improve the performance of enterprises;secondly,which factors of equity incentive schemes can significantly influence the financial performance of the enterprises.The first part of the article is try to introduce the basic theory of equity incentive and reviewed the relevant literatures on equity incentive.Additionally,it also constructs the"equity incentive motivation-equity incentive plan elements-the corporate financial performance analysis model.Then use case analysis method to study the problems in this two selected listed high-tech company to compare-Hikvision and Dahua.Hikvision had two projects of equity incentive.in 2012 and 2014,but Dahua did this process in 2013.The equity incentive plans and financial performances of the two companies is the main part to analyze.To be more specific,introduced the basic situation of the two companies firstly,then analyzing various elements of the equity incentive program of two companies,and comparing the differences of the incentive object composition,equity incentive model,validity,performance indicators.For example,Hikvision's two equity incentive plans included middle level managers,core employees and core staff,but Dahua's plan focus on higher level managers and key employees;the validity of Hikvision's two equity incentive plans were ten years,compared with four-year validity of Dahua's plan.Moreover,the goals of performance indicators of Hikvision and Dahua are different,Dahua preferred better performance indicators.In terms of unlock situation,both two equity incentive plans of Hikvision were successfully unlocked,but Dahua's plan cannot unlock at beginning.Based on the two companies' different plans of equity incentive,the article uses the event study method and financial analysis method to compare on the effect of the two companies,analyzing the market reaction when the incentive scheme of the announcement of the 2010 in the equity market reaction and the financial data and value added figure from 2010 and 2016,in order to have objective,prudent and reasonable evaluations on the two enterprises' equity incentive plans.By studying this two cases,the article has these conclusions:good equity incentive plan helps improve corporate financial performance.In the processes of setting equity incentive plan,reasonable objects,period and a comprehensive performance evaluation system should be included.The article can provide reference for designing equity incentive plan of high-tech enterprises in China.Corporates can consider their own situation to design an equity incentive plan which can meet their needs,and provide case study for Chinese equity incentive research.