Equity Incentives, Inefficient Investment And The Risk Of Stock Price Collapse

From the practical experience of western developed countries,equity incentives can be used as a long-term incentive mechanism to form a kind of cooperative partnership of“cooperation,symbiosis and benefit sharing” while alleviating the agency conflict between shareholders and managers.Enterprises wanting to be among the best in the fierce market competition can not do without choosing superior investment project,but whether the managers will conscientiously serve the overall interests of the company in the process of operation or be influenced by private interests to make non-efficient investment behavior is not sure,the moral hazard formed by the information asymmetry between each other can not be ignored.If the managers has a “covering” behavior to hide its bad investment operation motive,the stock price of the listed company is inevitablely misleading and the risk of stock price collapses is easy to form.Different from the western capital market,China's emerging market economies are still immature,sensitive and vulnerable,easily affected by adverse market factors.If the stock price “plunges”,it will undoubtedly cause investor faith to be damaged,the company to face the risk of bankruptcy as well as the capital market to fluctuate,the detriment cannot be underestimated.How to prevent and resolve the risk of stock price crash should attract the attention of all sectors of society.To this end,this paper is based on the Chinese capital market,intends to explore the governance effect of equity incentives to resolve the stock price crash risk,wanting to clarify the logical relationship between equity incentives,non-efficiency investments,and stock price crash risks,trying to verify the effectiveness of the equity incentive system.Correspondingly,we want to give policy recommendations from the perspective of internal and external corporate governance,trying to enrich the existing research and provide some theoretical experience to promote the stability and healthy of the domestic capital market's development.The main part of this paper firstly introduces the related concepts of equity incentives and summarizes it's implementation effects.It points out that in the actual operation process,whether the equity incentives have positive or negative governance effects needs further investigation,preparing for further research of the relationship among equity incentives,non-efficienct investments and stock price crash risk.Secondly,based on principal-agent theory,operating conditional theory and human capital theory,the three theoretical basis of this paper is given to increase the rationality of this article.Then,the regression test as well as robustness test was carried out on the main hypothesis of this paper.Finally,we come tothe conclusion and put forward relevant policy recommendations in order to acquire the positive governance effect of equity incentives.In the empirical part,this paper takes the GEM listed companies that announced the implementation of equity incentive plan in 2010-2017 as our research sample,and actively removes the companies that suspend the equity incentive plan during the period to increase the reliability of the research conclusions.The listed companies that implement equity incentives are valued in the form of dummy variables,and then tested in a continuous variable.Our results show that:(1)There is a significant negative correlation between the implementation of equity incentives and the stock price crash risk.The equity incentive plan implemented by the GEM listed companies can reduce the risk of stock price collapse in the future;(2)Equity incentives can improve the investment efficiency of listed companies,effectively inhibiting the inefficient investments of executives,especially over-investments;(3)Inefficient investment will increase the risk of stock price crash of listed companies,and the role of executive equity incentives to prevent stock price collapse can be achieved by curbing inefficient investment,in which inefficient investment plays an incomplete mediating role.