An Empirical Test Of Relationship Between Equity Incentive And Corporate Performance

As an important way to resolve principal-agent problems, Equity Incentive lets the executive hold the company's shares, combines the benefit of enterprise owner and executive, which will motive the executive working hard. Since 1950s, Equity Incentive originated in the United States. Equity Incentive was widely implemented in the western countries which have mature capital markets, and achieved great success. Practical experience has shown that the equity incentive is indeed able to promote the value creation, and promote the performance increasing. However, the usage of equity incentive was a bit later in China, compared with its development in foreign countries. Since 1993, Shenzhen Wanke firstly tried to implement equity incentive. Then 2005, "Equity Incentive Measure for the Listed Companies" was promulgated. Listed companies in China had experienced the exploration period. Until 2005, the split share structure reform is implemented in China's securities market, prompting the stock market restructuring. In the same year, the CSRC issued the "Equity Incentive Measure for the Listed Companies (tentative)", the newly revised "Securities Law" and "Company Law" was promulgated. After 2005, "Equity Incentive Trail Measure for the State Holding Listed Companies (Domestic)" and "Memorandum of Equity Incentive Related Matters" were gradually implemented. With the promotion of a series of policies and regulations, the obstacles of equity incentive implementation was removed one by one, the enthusiasm of equity incentive implementation was high, China's equity incentive ushered in a vigorous development of the "spring". Then theorists and practitioners deeply researched the related problems. But so far, many problems haven't formed a conclusion. For example, what's the effect of the implementation of equity incentive in China's market environment, whether there is correlation between equity incentive and corporate performance. Therefore, in order to advance our overall understanding of the equity incentive, improve the incentive program, it's necessary to research the effect of equity incentive systematically and deeply.Based on the above purpose, this essay absorbs the results of previous studies, uses the empirical research methods, selects the domestic equity incentive company as a sample, analyzes the relationship between equity incentive and corporate performance. This essay is divided into five parts:Part one is preface. This part outlines the background and significance of the study, summarizes and discusses domestic and foreign literature, then extracts the research direction and focus. Part two is an overview of equity incentive. This part mainly explains the meaning and basic modes of equity incentive, and discusses the implementation situation in China. All of these paves the way for later theoretical research. Part three is the theoretical research between equity incentive and corporate performance. This part firstly introduces the principal-agent theory and human capital theory, analyzes the operating mechanism. Then it discusses Convergence of Interest Hypothesis and Management Entrenchment Hypothesis, analyzes the correlation between equity incentive and corporate performance. The last, this part compares the stock option and restricted stock, analyzes the differences between the two incentive effects. Part four is empirical analysis. In this section, according to the theoretical analysis, this essay establishes three specific assumptions and regression models. Then it selects the listed company's cross-sectional data in 2009, uses the statistical software SPSS, adopts the independent sample T test and paired samples T test methods, verifies the overall effect of the equity incentive implementation. It adopts the linear regression method, verifies the correlation between equity incentive rate and corporate performance, analyzes the relationship between equity incentive mode and corporate performance. Then we get the empirical results. Part five is research conclusion and suggestion. It explains the empirical results and proposes several feasible suggestions for solving these problems in the implementation process.Through the theoretical and empirical research, we get the following conclusions: (1)Although the implementation of equity incentive promoted the corporate performance increasing, but the extent was a bit weak, the effect was not obvious. That's because capital markets are lack of validity, listed companies are controlled by the management strictly, assessment indicators are not scientific enough, competitive market of professional managers has not been established, the existing laws are backward. (2)There is a positive correlation between equity incentive rate and corporate performance. If the equity incentive rate is greater, the company performance is better. (3)The performance of companies which adopt the restricted stock mode is better than those adopt the stock option mode. The incentive effect of restricted stock is slightly better than stock option's.The main innovation of this essay is the empirical analysis. Previous empirical paper about incentive equity select the companies whose top management hold the stock as a sample. But we think, the companies which implement equity incentive can't be replaced by the companies whose senior management hold the stock, due to Chinese special conditions. That's because senior management can get company's stock from a wide range, not only by the equity incentive. If we use the companies whose senior management hold the stock to analyze the effect of equity incentive, the conclusions we get may not be exact. This essay selects the listed companies which implement equity incentive as a sample, selects incentive rate as an independent variable. This makes the empirical results have more accuracy and more persuasive. I hope research conclusion and suggestions is benefit to advance our overall understanding of equity incentive, is benefit to make the equity incentive plan more perfect, is benefit to improve the operating efficiency, is benefit to promote the sustained, healthy and stable development of corporation.