The Impact Of Equity Incentive On Long Term Performance Of Listed Companies In China

Since the Reform and Opening,China has been experiencing a rapid economic growth,which promotes Chinese enterprises to operate in a market way.More and more enterprises,especially listed companies,start to hire professional managers who have rich experience,to build a scientific management system and to integrate internal and external resources in order to maximize enterprises' profits.Although hiring professional managers are of great help to enterprises,just like every coin has two sides,there are deficiencies,namely,principal-agency problems.That is,professional managers may take advantages of their positions and undermine the companies and shareholders for their own sake.Researches have proved that granting executives a proportion of stocks can reduce the risk of principal-agency problems to some extent.In this dissertation,we studied the variances of companies which have completed equity incentives,focusing on the performances between 3 years before and after.Thereby,we analyzed the relationship between equity incentives and corporate performances in the long term.As a result,47 listed companies were selected for research,which had completed the last period of equity incentives by the end of 2015.There are five parts in this dissertation.To start with,we summarized related researches at home and abroad,and demonstrated how equity incentives affect corporate performances in theory.Secondly,we analyzed the current situation between equity incentives and corporate performances.Next,47 listed companies were selected as samples,and the entropy weight method was utilized to measure long-term performances.We applied multivariate linear regression model to analyze the whole companies,high-tech companies and companies other than high-tech companies respectively.Finally,we drew conclusions and proposed advice for policy formulation.Our conclusions are as follows.1.Equity incentives significantly improve the long-term performances of listed companies;2.The relationship between the extent of equity incentives and corporate performances is inverted U-shaped.Generally speaking,it is most beneficial to companies if senior managers have a shareholding of 3.09%.As for high-tech companies,a shareholding of 4%is considered the most beneficial.As for companies other than high-tech companies,a shareholding of 2.61% is best for them.3.Compared with other companies,the improvements of performances of high-tech companies brought by equity incentives are greater.To sum up,based on our research,we suggest:1.Listed companies should construct incentive systems including both long-term and short-term incentives.2.When constructing incentive systems,it's best for listed companies to establish a performance assessment system as well.3.When constructing incentive systems,listed companies should take their specific situations into consideration,and give equity incentives according to their own business or industry.