Relationship Between Equity Incentive And Firm Performance

Equity incentive is a common long-term governance mechanism in firm operation,and it can help firms binding shareholders and managers' interests through conferring stock to managers,so as to constraint managers' short-term behavior,reduce agent cost,and improve firm value.In addition,equity incentive can also help firms attracting talent people or incent managers(or other key personnel)to endeavor in realizing firm performance.In the early 1980 s,equity incentive mechanism was widely applied by western companies.However,due to the time-lag of the “opening” of capital market in China and the development-lag of related regimes,equity incentive mechanism didn't get the actual attention of relevant government departments and enterprisers until 2005 when the non-tradable shares reform was implemented.In recent years,with the improvement of domestic market system,more and more firms start to use equity incentive to solve the principal-agent problem produced by two rights separation.Besides,under the background of the slowed economic growth,more firms trend to choose equity incentive mechanism as an inner mechanism to stimulate sustained growth in firm performance.With the promotion of equity incentive mechanism in public listed firms in our country,its implementation condition and practical effect become the focus of the theoretical and practical circles.Can equity incentive promote firm performance effectively? How firms should design the equity incentive plan to achieve their maximum profit? Both scholars and entrepreneurs put a great deal of interest and enthusiasm in these questions.Thus,it is necessary for us to further discuss the relationship between equity incentive and firm performance in Chinese market.First,this study sort out existing literature,concluded related theories,and defined related concepts(including enterprise performance,equity incentive,etc.).Then,we analyzed equity incentive's effect on firm performance basing on the principal-agent theory,and further discussed the probable moderating effect of firm size and firm age combining with corporate governance perspectives;we also developed a research model and related research hypothesis.Later,leveraging data of equity incentive plans of listed firms in growth enterprise market from 2010 to 2016,we use multivariate linear regression model to analyze the theoretical model.The results show that both the degree and the validity period of equity incentive have positive effect on firm performance,restricted stock can promote firm performance more than stock options,and the greater the firm size,or the smaller the firm age,the grater the promoting effect equity incentive can exert on firm performance.