The Effect Of Equity Incentive On Dynamic Capital Structure Adjustment-Evidence From Chinese Listed Firms

Equity incentive is an important issue in corporate finance.At present,scholars have done a lot of research on the impact of equity incentive on corporate value,and the intermediate mechanism of equity incentive on corporate value,such as investment decision-making,dividend and bank credit financing decision-making.However,the impact of equity incentive on capital structure,another important financing decision of companies,has received little attention.In recent years,the leverage rate of China's non-financial enterprises has been increasing rapidly.How to stabilize leverage and de-leverage has become one of the key points of current economic work.Therefore,it is of great practical significance to strengthen the research on the influencing factors of capital structure.A large number of theoretical and empirical studies on the capital structure of enterprises have proved that enterprises have an optimal capital structure.In order to enhance the value of enterprises,enterprises will continue to adjust to the target capital structure.Executives are the main decision makers of the capital structure of a company.Their willingness will directly affect the speed of capital structure adjustment to the target capital structure.Will equity incentive policy affect the dynamic adjustment of capital structure?The domestic equity incentive management system began to be implemented in 2006 and revised in 2016.In the early stage,because of the small sample size and short observation period,scholars mostly used the proportion of senior managers' shareholding as the substitute variable of equity incentive.However,many studies show that there are significant differences between the two in stock source,holding cost,proportion and duration,which may lead to misleading conclusions.With the implementation of equity incentive policy of Chinese Listed Companies expanding,it is not only feasible to study it as a sample,but also provide more pertinent suggestions for companies and regulators on how to further improve the equity incentive scheme.This paper takes the companies that implement equity incentives in Shanghai and Shenzhen Stock Exchanges from 2006 to 2016 as samples to analyze the impact of equity incentive policy on capital structure adjustment.The specific content includes two parts:one is the impact of equity incentive on the speed of capital structure adjustment;the other is whether there is asymmetry in the adjustment of capital structure by equity incentive at different debt levels.In order to improve the robustness of the conclusion,this paper constructs a partial adjustment model based on previous research,and uses three methods of regression analysis:random effect panel model,fixed effect panel model and fixed effect instrumental variable(robustness analysis).Equity incentive variables are also measured by 0-1 fictitious variable and continuous variable of equity incentive intensity.The results of this study show that equity incentive is positively correlated with the dynamic adjustment speed of capital structure,that is,equity incentive can accelerate the adjustment speed of capital structure;further research after differentiating the level of corporate liabilities shows that equity incentive has a stronger impact on the upward adjustment of capital structure of underleveraged companies than on the downward adjustment of capital structure of overleveraged companies.The impact of equity incentive on the upward adjustment speed of capital structure is more significant.The conclusion of this paper on the impact of equity incentive on the asymmetry of capital structure adjustment is different from that of domestic scholars who use executive stock ownership as proxy variable.This paper holds that although equity incentive has benefit convergence effect on the whole and helps the company to adjust its target capital structure,for over-indebted companies,equity incentive tends to induce the excessive risk-taking behavior of executives.Then this paper analyses the opportunistic behavior of executives from three aspects:the proportion of equity incentive,the implementation period and the exercise index.The conclusions and policy recommendations are as follows:Equity incentive policy is a double-edged sword,and good equity incentive effect depends on effective scheme design and institutional supervision.The suggestion of this paper is to carefully select the object of equity incentive implementation,not to use equity incentive for companies with financial difficulties;carefully adopt single performance indicators such as ROE and EPS to avoid inducing opportunistic behavior of senior officials;while improving the equity incentive supervision system,actively establish and improve the system of executive stock ownership and employee stock ownership,so as to reduce agency costs in many ways and maximize the value of the company.