Equity Incentives And Stock Price Crash Risk

At the beginning of the operation of equity incentives in developed countries in Europe and the United States,people once believed that such a system binds the interests of managers and shareholders and realizes the convergence of interests.This will surely alleviate the agency problems and achieve a win-win situation for owners and managers.However,at the beginning of the 21 st century,the bankruptcy of big companies such as Enron and WorldCom broke the morality of managers for their own interests or for the purpose of exercising options.The bursting of the Nasdaq bubble also caused regulators and academia to reflect on the rationality and effectiveness of managerial stock incentives.If the design and supervision are not properly implemented,the equity incentive system may not be able to achieve a win-win situation.It will intensify corporate agency issues.Under the background of economic globalization,since the implementation of the "Administrative Measures" in 2006,China's equity incentive system has begun its embryonic stage.It has begun to show explosive growth in 2011.As a developing country,China's capital market is still underdeveloped,the relevant regulatory system is not yet perfect,and the market environment has not yet reached the semi-strong and effective stage.When equity incentives are mushrooming,we need to analyze whether it is a “double-edged sword”.More attention needs to be paid to its adverse effects.Based on the above analysis and principal-agent theory and information asymmetry theory,the following questions are raised in this paper: Implementing equity incentives for managers makes managers motivated to conceal the company's “bad news”,for example,smoothing company profits or adjusting company profits.In order to achieve the conditions of exercise of rights,whether the implementation of managers' equity incentives has an impact on the future stock price collapse risk of listed companies in China? Is there an intermediary mechanism of earnings management in the relationship between managerial stock incentives and future stock price collapse risk?This paper takes the data of China's A-shares from 2009 to 2017 as a sample,and empirically studies the relationship between equity incentives and the future stock price collapse risk and whether there is an intermediary mechanism between earnings management.The study finds that:(1)The strength of managers' equity incentives is significantly positively correlated with the future stock price crash risk;(2)There is an intermediary mechanism of accrued earnings management in the relationship between managers' stock incentives and the future stock price crash risk.However,the findings of this paper cannot support the intermediary of real earnings management to the relationship between managers' equity incentive strength and future stock price crash risk.The innovation of this paper is to empirically study the intermediary mechanism of managers' equity incentives impacting the stock price crash risk,and to prove that the significant positive correlation between managers' equity incentives and stock price crash risk is partly through accrued earnings management.