Employee Follow-on Investment And Corporate Violation

As a supplement to the equity incentive policy,Employee Follow-on Investment has been increasing in recent years,mostly in the real economy such as high-tech and manufacturing industries,echoing to a certain extent the current reform trend of "Transformation from the fictitious economy into a real economy" and innovation-driven development.By allowing management and employees to invest in new projects,it can stimulate employees’ passion for entrepreneurship and bring incremental business based on new technology and new business models to the enterprise.However,at present,there is no standard guideline for Employee Follow-on Investment,which may turn into a "new pipeline for benefit transfer" and a "self-interest tool" for management,and some irregularities occur.For example,Vanke used Employee Follow-on Investment to manipulate the share price,insider trading,illegal disclosure of information,as well as the Employee Follow-on Investment management plan has a secret operation,the source of funds not considered by the shareholders’ meeting and infringed on the rights and interests of state-owned shares,and failed to disclose the profit of business partners.Research on the economic consequences of Employee Follow-on Investment implementation is extremely rare,so it is important to explore the impact of Employee Follow-on Investment on corporate violations,which can provide reference for the standardized application,continuous application and promotion of Employee Follow-on Investment in Chinese enterprises,and then provide reference for the improvement of corporate decision-making and behavior in the promotion of innovation-driven development strategy,and promote the high-quality development of Chinese enterprises and national economy.This thesis analyzes the relationship between Employee Follow-on Investment and corporate violations based on principal-agent theory,fraud triangle theory,rational economic man hypothesis,managerial rent-seeking theory and trench effect,followed by probit regression model to empirically test the impact of Employee Follow-on Investment on violations of listed companies and its mechanism of action,using A-share listed companies from 2014 to 2020 as a sample.The results show that: firstly,the probability of corporate violation is higher for companies that implement Employee Follow-on Investment compared to those that do not,and Employee Follow-on Investment may be a tool for executives’ self-interest and a new channel for benefit transfer.Second,Employee Follow-on Investment significantly increases the agency cost and the related transaction,and the tendency of executive self-interest plays a transmission role in the relationship between Employee Follow-on Investment and corporate violations.The tendency of employees’ self-interested behavior is mainly reflected in the transfer of profits to the project for personal gain,which leads to illegal investment,illegal guarantee,illegal related transactions and illegal disclosure of information.;third,Employee Follow-on Investment significantly increases the probability of occurrence of disclosure violations,operational violations,and leader violations.Fourth,when marketization is low,legal environment is weak,and product market competition is fierce,management has more motives and opportunities to seek rents,and Employee Follow-on Investment is more likely to become a tool for executives’ self-interest and a new channel for benefit transfer,which exacerbates the risk of violations in listed companies.The purpose of this thesis is to comprehensively evaluate the economic consequences of Employee Follow-on Investment,guide the regulator to introduce relevant policies,and guide the standardized application and popularization of Employee Follow-on Investment,and put forward the following policy recommendations by combining the findings of the study: first,reasonably formulate the Employee Follow-on Investment plan,so that the Employee Follow-on Investment plan can play the role of motivating employees and innovation-driven corporate development,instead of becoming a tool for executives’ self-interest;Second,strengthen the supervision of the employee follow-up investment plan.In the strict supervision environment,it is difficult for the management to seek personal gains by implementing the employee follow-up investment plan;Third,improve the information disclosure system of employee follow-up investment,as high-quality information disclosure can inhibit issuers from operating irregularly and help strengthen supervision and improve market resource allocation;Fourth,establish a mature capital market,as a better capital market can increase the cost of corporate violations and reduce the occurrence of irregularities.The expected contributions of this thesis are:(1)the thesis fills the research gap in the field of Employee Follow-on Investment,most of the previous studies on employee incentive mechanism are on employee stock ownership plan,but few studies focus on Employee Follow-on Investment,this thesis can enrich the theory of Employee Follow-on Investment;(2)the thesis extends the research of the implementation effect of Employee Follow-on Investment,and deeply analyzes the effect of Employee Follow-on Investment on corporate violation from the perspective of management,and demonstrates the possibility of Employee follow-on investment launching and landing.;(3)The thesis analyzes the impact of Employee Follow-on Investment on different types of violations,and studies the impact of Employee Follow-on Investment on corporate violations under different degrees of marketization,product market competition,and legal scores,which helps companies understand in what environment Employee Follow-on Investment is more likely to induce executives’ opportunistic behavior,and what types of violations Employee Follow-on Investment can cause.In practice,it provides theoretical support for standardizing the implementation of employee follow-up investment and implementing policies effectively.