Research On The Impact Of Executive Equity Incentives On Corporate Debt Financing Costs

Nowadays,China's economy is under the impact of environment,internal economic growth slows down,and development and reform advancement is difficult;externally,due to the increase of tariffs in the United States,a trade war has been launched to block and suppress China's high-tech enterprises.At the same time,the global economy is approaching the ceiling and is gradually entering the stage of stock fighting.Under this background,the business development situation of enterprises is also changing.However,while the enterprise is affected by the environment,its own management is the key to the survival of the enterprise.In addition to production and management,the management of an enterprise lies in solving internal governance issues.The ability of business development determines how fast an enterprise can go,and the ability of corporate governance determines how far an enterprise can go.As one of the important means in corporate governance,equity incentives can effectively alleviate the principal-agent problems existing in enterprises,affect corporate decision-making,etc.,so it has attracted the attention and research of experts and scholars.At the same time,the issue of corporate finance is also a focus of research by current scholars.In China,debt financing and equity financing are the main means of financing for listed companies.Although debt financing will increase financial risks compared to equity financing,it will not weaken shareholders' corporate control and share corporate after-tax profits like equity financing,so rational use of capital leverage can help companies develop better and faster.In terms of financing costs,the cost of equity financing is generally higher than debt financing.Debt financing only needs to pay interest and repay the principal on a regular basis.At the same time,according to the different qualifications of the enterprise and the scale of business development,there are differences in the cost of debt financing.In addition to the enterprise itself,creditors also have a certain say in the cost of debt financing.How to enable the enterprise to effectively communicate with the creditors and reach a consensus is a problem that must be considered and resolved in the financing process of the enterprise.Due to the problem of information asymmetry between creditors and enterprises,equity incentives,as a good way of transmitting information,can convey corporate governance information to creditors.On the other hand,after implementing equity incentives,corporate executives' risk-taking and earnings management motivation will also increase accordingly,and creditors should be more cautious at this time to seek higher premiums to prevent risks.So how will equity incentives affect the cost of corporate debt financing? In order to explore the answers to the above questions,this article relies on the data of listed companies in China to conduct research.This article explores the impact of executive equity incentives on corporate debt financing costs through a combination of normative research and empirical research from the perspective of shareholders,managers and creditors.Based on the basis of literature research,combined with principal-agent theory,human capital theory,incentive theory,signal transmission theory,risk-taking theory,etc.,analyze the impact of executive equity incentives on corporate debt financing costs.Then,in order to verify the pre-proposed hypothesis,the historical data samples of listed companies in Shanghai and Shenzhen in China from 2012 to 2018 are used to establish a multiple regression model for empirical analysis.The research results show that with the increase in the strength of equity incentives,corporate debt financing costs have decreased significantly.This shows that the company sends positive signals to creditors through the implementation of executive equity incentive programs,reduces the asymmetry of information with creditors,thereby bringing greater benefits to the company,while also ensuring the creditors' own capital security and creating a win-win environment.Further discussion If we distinguish the nature of corporate property rights,the effect of senior management equity incentives on reducing the debt financing costs of non-state-owned enterprises is more significant,and it has a negative impact on the debt financing costs of state-owned enterprises,that is,As a result,corporate debt financing costs will also increase.This shows that compared with non-state-owned enterprises,state-owned enterprises often have more credit advantages in debt investment and financing,and no more financing constraints.Creditors have different starting points and perspectives when considering capital pricing,so the implementation of equity incentives not only reduces debt The effect of financing costs is small,and even the implementation of equity incentives may increase the uncertainty of the future operation and performance of state-owned enterprises,which may lead to rising corporate debt financing costs.When creditors consider non-state-owned enterprises,they will pay more attention to the positive signals transmitted by the implementation of equity incentives and reduce information asymmetry.If the method of corporate executives' equity incentives is distinguished,restricted stocks can reduce corporate debt financing costs,while stock options have no significant relationship to corporate debt financing costs.This shows that stock options are more risky to implement than restricted stocks.Creditors' identification of risks tends to select companies that implement restricted stocks with less risk,while increasing financing conditions for companies using stock options Increase capital pricing.In terms of corporate equity concentration,the negative correlation between equity incentives and debt financing costs is not significant in companies with higher equity concentration;and in companies with lower equity concentration,equity incentives and debt The negative correlation between financing costs is more significant.This shows that the highly concentrated ownership structure will weaken the positive effects of equity incentives,and large shareholders have more opportunities to conduct earnings manipulation and excessive investment to occupy the interests of small and medium shareholders.For enterprises with relatively dispersed equity,the implementation of equity incentives will form effective supervision and constraints among shareholders and reduce internal and external information asymmetry.