Research On The Impact Of Different Types Of CEO Equity Incentives On M&A Decision

M&A is not an investment activity that can significantly improve the performance of enterprises.In China's listed companies,the owner of the company is not the same person as the actual manager,which leads to the separation of ownership and control rights of the company and causes agency problems.Equity incentive system has been introduced into China since 1993.In order to solve the agency problem between shareholders and managers,more and more listed companies in China begin to implement equity incentive system for CEO.Shareholders and agents often have different risk preferences,and shareholders are more willing to take risks than CEO.Because shareholders have more investment channels and more income sources,and executives rely on limited human capital for income,the risk-taking ability of executives is weaker in comparison.This paper argues that there is no absolute risk neutrality,so this paper argues that the risk attitude of senior managers is risk aversion type,and shareholders are risk seeking type.In the capital market,high risk often corresponds to high return.Taking risks is the premise of gaining profits.When faced with high return but high risk investment projects,CEOs often give up those investment projects because they are unwilling to take risks.Merger and acquisition is a major investment project of enterprises,often accompanied by huge risks.CEO is often one of the important decision makers in M&A activities.It is particularly important to design appropriate compensation contracts to influence their risk preference level and make them consistent with shareholders.Two kinds of equity incentive modes commonly used in A-share market in C hina are stock option incentive and restricted stock incentive.Although both of them are long-term incentive mechanisms for CEOs,there are obvious differences between them in terms of power price and uncertainty of future expected earnings,which make them have different effects on CEO risk preference,and CEO risk preference is closely related to high-risk M&A decisions.In the research on the relationship between CEO's equity incentive plan and M&A decision-making,most researchers only discuss the impact of broad equity incentive on investment decision-making such as M&A.That is to say,they regard equity incentive as a whole,but seldom distinguish the different types of equity incentive,such as common stock,restricted stock,stock options,etc.on M&A decision-making,which results in academic research.There is no difference between different types of equity incentive plans and M&A decision-making.In fact,restrictive stock incentive and stock option incentive,as different incentive modes,have different effects on CEO's risk preference,so they also have different effects on M&A decisions.Based on the principal-agent theory,risk-taking theory,optimal contract theory and prospect theory,this paper studies the impact of different types of equity incentive schemes awarded to CEOs on risky M&A decisions.On this basis,three hypotheses are proposed to empirically study the differences of different types of equity incentive schemes on M&A decisions and M&A scales of listed companies,and to make reasonable decisions.Explain.In addition,this paper introduces the multiplier of equity incentive intensity and board size,the proportion of independent directors and environmental uncertainty into the framework of this study,and carries out grouping regression according to the type of equity incentive.This paper takes Shanghai and Shenzhen A-share listed companies which implement equity incentive plan for CEO from 2013 to 2017 as samples,carries out correlation analysis and multiple regression analysis with the help of Stata statistical analysis tools,and conducts empirical tests to study the M&A behavior of CEO in three years after his term of office was awarded equity incentive.Finally,the research finds that compared with the restrictive stock incentive,the CEO who obtains the stock option is more inclined to make M&A decisions and the scale of M&A transactions is larger.This is because stock options have a greater impact on CEO's risk preference and make CEO willing to take risks.The proportion of independent directors and the size of board of directors have a negative moderating effect on the relationship between the degree of equity incentive and the decision-making of merger and acquisition,especially when the type of equity incentive is stock option incentive.Environmental uncertainty has a positive moderating effect on equity incentives and M&A decisions.When the type of incentive is stock option incentive,the moderating effect is more obvious.The results enrich and expand the relevant research on equity incentive and management risk preference,which is of great significance for companies to improve the relevant long-term incentive mechanism and pay attention to the impact of CEO risk preference.