Study On The Mardet Reaction To Listed Companies' Disclosure Of Equity Incentive

In the middle of 20th century, the emergence of equity incentive in America for solving the principal-agent problem, which caused by the separation of ownership and management in modern enterprise. From the experience of Western countries, as a long-term incentive to corporate managers, the implementation of equity incentive could overcome managers'short-sighted behaviors and unified the interests of owners and managers. The implementation of equity incentive also could make manage focus on company's long-term interests and benefit from the growth of company. After 1990, some listed companies in our country learned from Western experience and began to try implementing equity incentive. However, due to the unique institutional environment and our country's not developed market economy, the implementation of equity incentive did not have a significant effect. After the non-tradable share reform, our country's stock market environment had greatly improved. After the publish of "Equity Incentive Measures for the Administration of Listed Companies", the environment of implementation of equity incentive was improved, our country began to standardize the development of equity incentive system. According to Western economists' study, the implementation of equity incentive can improve the principal-agent problem and increase the value of company. Therefore, the announcement of listed company's equity incentive plan will impact the share price.In order to investigate the impacts of equity incentive'implementation in current environment and observe whether the announcement of equity incentive will cause abnormal stock price volatility, the paper selected companies as research object that listed in Shanghai Stock Exchange and Shenzhen Stock Exchange, which announced equity incentive plan from 2007 to 2010. Using event study to research whether the announcement of listed companies'equity incentive will cause market reactions. What's more, on the basis of the research, the paper also researched whether the different equity incentive'subject matters will bring about different market reactions.Through empirical tests, the paper concluded that:Firstly, there are positive market reactions on the announcement of the equity incentive in our country's stock market, especially in Window period (-2,2). This is because equity incentive as a mechanism to solve the consequences caused by separation of ownership and management, there are some incentive effect. The incentive effects which were recognized by equity investors will make company's stock have positive abnormal returns. In window period (0,30), the abnormal returns disappeared gradually, which means the announcement's impact on market becoming smaller and smaller, eventually disappeared after 30 days. Secondly, there were no managers take actions to affect company's stock price for their private interests before the announcement of equity incentive in our country. However, because of our country's securities market is not perfect and relevant laws not in place, there was information leakage and other problems that cause companies had positive abnormal returns before announcements. Thirdly, there were different market reactions to different equity incentive subject matters. Such as the subject matter of stock options bring about positive market reaction, which consistent with the conclusions from all sample. But the subject matter of restricted stock did cause evident market reaction. This is because investors in our country are more familiar with equity incentive than restricted stock, there were different market reactions to different subject matters. We can conclude that when a listed company to develop an equity incentive, it should choose reasonable subject matter.