Analyst’s Attention,Institutional Investor Holdings And Equity Incentive Effect

Equity incentive was firstly a fruitful institutional innovation in mature capital market to solve the agency problem arising from the separation of ownership and operation of the company.After the establishment of China’s capital market,the equity incentive system was also introduced,which started relatively late but developed rapidly.More and more listed companies gradually realize the necessity of developing long-term incentive mechanism.With the gradual increase in the number of listed companies implementing equity incentives in China,the research on equity incentives of listed companies has gradually become the focus of attention in both theoretical and practical circles.However,most of the studies on equity incentives in academic circles focus on the relationship between the implementation of equity incentives and the performance of listed companies.Few studies have studied the impact of analysts’ attention on the effect of equity incentives on listed companies from the external perspective of analysts,while ignoring the reality that institutional investors have become the backbone of China’s capital market.Institutional investors pay more attention to the growth and long-term development of companies and keep a high concern for the continuous growth of company performance.Institutional investors are closely related to securities analysts,but there are few studies linking the two together in the existing literature.In view of this,we propose to investigate the impact of analyst attention on the effectiveness of corporate equity incentives from the perspective of analyst attention and the moderating effect of institutional investors’ shareholding on the relationship between analyst attention and equity incentive effectiveness.In our study,we further examine the moderating effect of different nature of institutional investors classified by the existence of business ties with the firm and the concentration of shareholding.We use information asymmetry theory,principal-agent theory,and stakeholder theory as the underlying theories to develop the study,and also select listed companies in Shanghai and Shenzhen that have implemented equity incentives from2015-2019 as the study population(data span from 2012-2021).We investigate the relationship between analyst attention,institutional investors’ shareholding and equity incentive effects using multiple regression methods,ordinary least squares OLS,and moderating effect models.Conclusion: First,analyst attention significantly reduces the effectiveness of companies’ implementation of equity incentive plans.The more the number of analysts who pay attention to the listed company,the worse the effectiveness of the company’s equity incentive.Second,institutional investors’ shareholding affects the relationship between analyst attention and equity incentive effectiveness.Institutional investors’ shareholding inhibits the effect of analytical attention on the reduction of equity incentive effectiveness.The higher the shareholding of institutional investors,the weaker the negative effect of analyst attention on equity incentive effect.Third,different nature of institutional investors have different moderating effects on the negative relationship between analyst attention and equity incentive effect.Both pressure-sensitive institutional investors and concentrated shareholding institutional investors’ shareholding inhibit analyst concern to reduce the equity incentive effect,and there is a partial substitution effect between pressuresensitive institutional investors and analyst concern.Based on our conclusion,we propose the following policy recommendations:First,improve analysts’ literacy and improve the conflict of interest prevention mechanism.Second,improve the institutional mechanism related to institutional investors’ participation in corporate governance and improve the effect of institutional investors’ corporate governance.Third,strengthen the supervision of listed companies’ equity incentives,effectively supervise the management,reduce the management’s behavior that is detrimental to the overall value of the company,and improve the equity Third,strengthen the supervision of the listed companies’ share incentive plan,effectively supervise the management,reduce the management’s behavior of damaging the overall value of the company and improve the effectiveness of the implementation of the share incentive plan.