Research On The Effects Of Equity Incentives Modes Selection On Inefficient Investment Of Corporations

It is a common phenomenon among Chinese corporations in different levels of inefficient investments,where executives are usually the decision makers.Therefore,designing suitable compensation contacts is of very importance for encouraging executives to improve the investment efficiency.More and more chinese corporations began to use equity incentives in the modes of options and restricted stocks since 2006.According to the Optimal Contract Theory,both incentive modes can solve the agency problem and improve investment efficiency through aligning the interests of executives and shareholders.While there are some essential and statutory differences between restricted stocks and options,so whether it make a difference in investment efficiency?Based on the question above,this paper takes A-share companies listed in Shanghai and Shenzhen Exchanges as researching sample from 2006 to 2016,and regressed observations in different groups after matching them using propensity score matching mode so as to verify the different effects caused by different incentives on inefficient investments.The empirical analysis presents the following conclusions: firstly,the implemention of options has a significant negative relatioanship with under-investment and over-investment,which improve that inefficient investment can be suppressed after implementing options.secondly,the implemention of restricted stocks has a significant positive relatioanship with under-investment and has no significant relatioanship with over-investment,which improve that under-investments will be degraded and overinvestment can't be suppressed after implementing restricted stocks.In summary,this paper indicates that options can restrain inefficient investments better than restricted stocks and it also indirectly proves that there are welfare incentives in equity incentive of listed corporations in China.Finally,according to the empirical findings,this paper puts forward some countermeasures and suggestions on corporate governance,equity incentive plans designing and regulations,so as to encourage corporations to design appropriate equity incentive plans by continuous trial and improve investment efficiency by establishing a good governance environment with supervision departments together.