Research On The Impact Of Equity Incentives On Management’s Inefficient Investment Behavior

Investment efficiency has always been a hot and difficult issue of concern to the theoretical and practical circles,and conflicts between management and shareholders are one of the key factors affecting the efficiency of investment.Generally speaking,the goal pursued by management is to maximize their own interests rather than maximize their enterprise’s value.They build their own business empire through sufficient resources.Based on this philosophy,management often chooses to invest in projects with NPV<0 in order to continue to expand the scale of the company,which leads to over-investment.Before choosing an investment strategy,management will get a lot of information,but in comparison,shareholders have very little information in the process.In the case of asymmetric information,management will choose to give up some investment projects which has posotive net present value,which leads to underinvestment.Due to the influence of over-investment and under-investment behavior,which hinders the smooth realization of the goal of maximizing enterprise value,it is especially important to solve the adverse effects caused by inefficient investment.The investment behavior of enterprises can provide a driving force for enterprises to make profits and sustain growth,and its importance is self-evident.In order to resolve the issue of principal-agent between shareholders and management,listed companies need to establish sound and effective incentives.Since equity incentives have the property of long-term incentives,by letting management hold shares to reduce their short-sighted operations in business decision-making,stimulating the enthusiasm of management officers to start a business,thereby optimizing the interests of owners and operators,and improving the company and their own value,thus effectively solving related problems caused by excessive investment and insufficient investment.Based on the analysis and research of the predecessors,this thesis empirically tests the impact of equity incentives on management’s inefficient investment behaviors based on the domestic A-share listed companies in 2012-2016,and according to the characteristics of different equity incentives,the differences between stock option incentives and restricted stock incentives on management’s inefficient investment are examined.Considering the differences in the nature of equity,the impact of the equity on the inefficient investment behavior of state-owned listed companies and non-state-owned listed companies are tested.The results show that the implementation of equity incentives can help management to make correct decisions when weighing the benefits of equity incentives and the cost of self-interest,thereby effectively curbing inefficient investment behavior and improving the investment efficiency of listed companies.That is to say,equity incentives can effectively inhibit the inefficient investment behavior of listed companies’ management.Secondly,the effect of restrictive stock incentives is significantly better than that of option incentives,which has a greater appeal to management,that is,stock options have less inhibitory effect on management’s inefficient investment behavior than restrictive stock.Thirdly,relative to state-owned listed companies,equity incentives will have a more significant effect on the suppression of inefficient investment behavior of non-state-owned listed companies.That is equity incentives have a greater inhibitory effect on the inefficient investment behavior of non-state-owned listed companies than state-owned listed companies.The research in this thesis not only enriches the research perspective of inefficient investment,but also provides new clues for the research on the financial consequences of equity incentive behavior.At the same time,suggestions were made from the aspects of selecting equity incentives,formulating equity incentive plans and improving the compensation system.