Research On The Negative Effects Of China Listed Companies Equity Incentive

Equity incentive has been widely implemented in listed companies of China after equity division reform. But the global financial crisis in 2007 revealed issues existing in equity incentive, for instance, earnings management and insider trades. In order to effectively avoid the problem in equity incentive implementation, this paper analyzes the phenomenon in its implementation from the perspective of the negative effects. The possible adverse effects are explored, while the implementation of the equity incentive system in China is further deepened. Therefore, the study on the negative effects of listed companies'equity incentive has important theoretical and practical significance to the development of equity incentive in China.This paper selects the Shanghai and Shenzhen A share listed companies audited as the sample, from the equity division reform to 31 December 2009. And the methods of the combination of theory and case, event study, comparative study and paired samples T test are applied in the study of the negative effects of Chinese listed companies'equity incentive. Among them, by applying combination of theory and case method, this paper studies adverse effects of equity incentive implementation from the perspective of equity incentive elements. The results show that the formulation of six elements in incentive plan, such as, the source of the stock, incentive target staff, incentive amount, exercise performance indicators, the exercise price and exercise time, is likely to cause management's earnings management and insider trading behavior. The results of event study method show that the impact of the incident equity incentive announcement is very short; stock options model, are more likely to leak information ahead of the time, more inspire management to take insider trading than the stock performance model. The growth of the company's financial results after implementing equity incentive and the differences in both incentive modes are examined by using the method of comparative and paired samples T test. And the results show that the implementation of equity incentive could lead to earnings management issues, and the stock performance model is particularly serious. The incentive effect of the stock performance model is superior to that of the stock options mode, but not significant. Further suggestions are proposed and the inadequacy is pointed out based on the equity incentive elements study and empirical study.In this paper, the sample selection has been further expanded in the study on the implementation of listed companies'equity incentive after equity division reform. The range of the study on negative effects of equity incentive has been expanded based on the equity incentive elements. But the comprehensive study of equity incentive elements and study methods have to be improved in further study. In short, this paper not only provides an idea on the quantitative analysis and evaluation of the equity incentive implementation effect, but also provides a useful reference for the implementation of equity incentive system.