Research On The Effect And Acting Pathway Of Equity Incentive In Listed Companies

Since the issue of <The Listed Company Equity Incentive Measures(Trial Implementation)>,more and more listed companies implement the equity incentive plan.According to the Wind database,a total of 675 listed companies implement the equity incentive plan as of December 31,2015,and presents the following characteristics: the number of companies implementing the equity incentive plan increases year by year,and private listed companies are more positive,and so on.With the number of companies which implement the equity incentive plan growing,the effect of equity incentive in listed companies also become a common focus in the theoretic and practical field,but because of limited sample data and other reasons,most domestic scholars use dummy variable method or matching method,rather than the angle of equity incentive level or structure(the incentive level or proportion granted to the executives),to test the effect of equity incentive of listed companies in our country.Basis on the theoretical analysis,this paper selects the listed companies which implement the equity incentive plan from January 1,2007 to December 31,2013,and calculates the equity incentive level by the ratio of stock options and restricted stocks involved in the equity incentive plan to the total shares of the company,or the equity incentive structure by the ratio of equity incentive granted to the executives to total incentive(the proportion granted to the executives).On the one hand,we test the corporate governance effect of equity incentive in listed companies by investigating the influence of equity incentive on corporate performance,agency costs and investment efficiency.On the other hand,we test the acting pathway of equity incentive by distinguishing the direct and indirect effect of equity incentive on company performance,where the indirect acting pathway of equity incentive include the agency costs pathway,the earnings management pathway,and the investment efficiency pathway,and so on.The organization of this article mainly includes three parts: the first is the theoretical analysis,including the first two chapters;the second is the research on the effect of equity incentive in listed companies,including the third to the fifth chapter;the third is the research on the acting pathway of equity incentive in listed companies,including the sixth chapter;the last is the conclusion and prospect.The specific research ideas and conclusions are summarized as follows:In terms of the relationship between equity incentive and listed companies performance.As is shown in the existing literature,equity incentive can improve the company performance,but also lead to the earnings management behavior.Therefore,we use the modified Jones model to calculate the earnings management,and test the impact of equity incentive on earnings management and company performance from the perspective of the non-linear relationship using the Panel Data Model.We find the linear relationship of positively correlated between equity incentive and corporate performance,but also the inverted U-shaped relationship between equity incentive and earnings management.However,we find a U-shaped relationship between equity incentive and real performance which is corrected by the earnings management,and the turning point lies in the range of 4.2% to 4.7%,which means that the effect of equity incentive on real performance is interval,and that the equity incentive improves the real performance only beyond this range.Our research provides empirical evidence and theoretical reference for the determination of equity incentive levels for the listed companies in China.In terms of the relationship between equity incentive and the agency cost of listed companies.Based on the Stochastic Frontier Model(SFM),this paper quantitatively estimates the corporate governance efficiency,on which the impact of equity incentives in listed companies.Further,we estimate the impact of equity incentives on dual agency costs from the perspective of the non-linear relationship using the Panel Data Model,which reveals the mechanism of equity incentive on the agency cost of listed companies.The results show that,the average governance efficiency of the listed companies is 74.7%~75.4% in our country,but shows a declining trend.Equity incentive is negatively correlated to the agency cost,which means that improving the level of equity incentive can effectively reduce agency costs,and improve the efficiency of corporate governance.Further test shows that,equity incentive improves the corporate governance efficiency mainly by reducing the agency cost I,but not the agency cost II.The research results show that we should further improve the level of equity incentive of listed companies in our country.In terms of the relationship between equity incentive and investment efficiency of listed companies.Using Richardson(2006)model to measure the investment efficiency,we use the dummy variable method to test the effect of the implementation of equity incentive plan on the investment efficiency of listed companies.And then,we calculate the equity incentive structure by the ratio of equity incentive granted to the executives to total incentive(the incentive level or proportion granted to the executives),and test the impact of equity incentive on investment efficiency of listed companies from the perspective of non-linear relationship any further.We find that the implementation of equity incentive plan improves the investment efficiency,both in alleviating the underinvestment and in inhibiting the overinvestment.Further results show that the equity incentive levels and investment efficiency is negatively correlated.Specifically,the equity incentive is negatively correlated with underinvestment,but U-shaped curvilinear correlated with overinvestment,where the turning point lies in about 51%.The results showed that we should encourage more companies to imply the equity incentive plan,and improve the proportion of equity incentive granted to the executives in the equity incentive plan.In terms of the acting pathway of equity incentive effect in listed companies.As is shown in the existing literature that the impact of equity incentive on agency costs and investment efficiency will ultimately reflect the company performance,so we use Structure Equation Model(SEM)which would put equity incentive,agency cost,earning management,investment efficiency and the company performance into a unified framework,to examine the acting pathway of equity incentive effect in listed companies.We find that the equity incentive can significantly improve the company performance.Further results show that 87.56% of the effect are realized through the direct acting pathway,12.44% through the indirect acting pathway,and that the agency costs pathway accounts for 8.00%,the earnings management pathway accounts for 4.44%,but the investment efficiency pathway is not significant.In this part,we comprehensively investigate the influence mechanism and acting pathway of the corporate governance effect of equity incentive of the listed companies in our country.This study is of great significance and application value for the implementation of equity incentive plan of listed companies in China,which shows that:(1)The effect of equity incentive on real performance is interval,which means that the equity incentive improves the real performance only beyond the range of 4.2% to 4.7%.However,the average level of equity incentive of listed companies in our country is only 2.818%,and only 2.748% when implementing the equity incentive plan(except 2008)which maintains in the range of 2.4% to 3.0%,this means that we should improve the equity incentive level when implementing the plan to improve the overall level of equity incentive.(2)The governance efficiency of listed companies showed a trend of declining year by year,but raising the level of equity incentive can effectively reduce the agency costs and improve the efficiency of corporate governance,which supports the conclusion that the level of equity incentive of listed companies should be further improved in our country.(3)The implementation of equity incentive plan and raising the proportion of equity incentive granted to the executives would both improve the investment efficiency of listed companies significantly.Specifically,the equity incentive levels granted to the executives are negatively correlated with underinvestment,but have U-shaped curvilinear relationship with overinvestment,where the turning point lies in about 51%,while the average incentive proportion granted to the executives to total incentive of listed companies in China is only 27.37% actually,and shows a declining trend..The results showed that we should improve the proportion of equity incentive granted to the executives,but not too high(more than 51%)which would intensify the overinvestment behavior of listed companies.(4)The test results based on the Structural Equation Model(SEM)are consistent with the conclusions before,that is raising the level of equity incentive can significantly improve the company performance,reduce the agency costs,and improve the efficiency of corporate governance.And raising the proportion of equity incentive granted to the executives would also significantly improve the investment efficiency of listed companies,but the ratio should not be too high which would lead to more serious over investment behavior,and reduce the performance of listed companies.