Study On The Market Reaction To The Listed Companies’Disclosure Of Equity Incentive

There is a Prevalence problem in the modern enterprise:the separation of ownership and the managerial authority, and also the managers have create great achievement for the company but get less reward. So a new relationship is formed between the owners and the managers, that’s called principal-agent relationship, and the contradiction become increasingly deepened. How to motivate the managers do their best to work for the owners, create great achievement for the company, the equity incentive is considered of the key to solve the above problems.In the middle of20th century, the equity incentive first appeared in the America. The system is aimed at to solve the problem that is caused by the separation of ownership and managerial executives, followed by rapid development in other countries. By the foreign experience, the equity incentive is seen as a long time incentive system, it could reallocate the rights between owners and managers, such as the residual claims and control rights, so the managers’ short-term behaviors should be overcome at some extent, unite corporate and personal interests, thereby enhance the value of the enterprise.1990s,some of the Chinese listed companies began to implantation the equity incentive system, but because of the Chinas’special institutional environment and capital market, it didn’t achieve much significant results. In addition, compared with the achievement of the achievement in other countries, the practice of domestic equity incentive system theory and research is still a lag. However, with the completion of China’s equity division reform, capital market improve, equity incentive system showed to be rapidly develop. In late2005, government issued the <Equity incentive measures of the Administration of listed companies>,it is considered as the first department rules and regulations. The promulgation of this regulation is aimed at provide the guidelines for the implantation of the equity incentive system. During the period between2006and2011, total388listed companies raised the equity incentive programs; research the market reaction of this issue is very useful and meaningful. And also to study the market reaction of different equity incentive’subject matters. According to the empirical research, the announcement of the equity incentive system will impact the stock price.Firstly, a simple review of relevant literature and theory on equity incentive system. Main literature including the market reaction to the announcement of equity incentive system,the relationship between equity incentive and company value, and also review some theory about the earning management and equity incentive and so on. In addition, the meaning of the equity incentive, the definition of elements in the equity incentive, the exploitation of the equity incentive, related policies and regulations. And set these theories, including:corporate governance, principal-agent theory and human capital theory, expectance theory and some related theory.In order to investigate the market reaction of the announcement of equity incentive, the paper selected these A-share listed on Shanghai Stock Exchange and ShenZhen Stock Exchange companies that disclosure the equity incentive plan in2007-2011as research object that. So this paper choose the event study to fulfill the research purpose. And we use a model to test the relationship of different equity incentive’subject matters and CAR. Then we get the following conclusions:Fist, there is a significant positive market reaction to the listed companies disclosure of the equity incentive plan, But the reaction is very short, it means the disclosure’s impact on market is more smaller.Second, there were managers take actions such as earning management to affect their companies’stock price.Third, before the listed company disclosure their equity incentive plan, there is positive abnormal returns, so there exists the information leakage and other problems.From the model, we can get that the Stock Appreciation Rights create more CAR, and the Stock Option create the least.And last,this paper give some suggestions, including:further improve the capital market; establish an effective manager market; improve related system; optimize the equity incentive results; improve the performance evaluation system and so on.