A Study Of The Equity Incentives Efficiency In Listed Company Of China Based On The Control Rights’ Allocation

Equity incentive has been widely recognized and implemented in the westerndeveloped countries as an effective measure to solve the principal-agent problem. Nowequity incentive is becoming increasingly popular in China, but the practice effect of theequity incentive is uneven, including some inefficient phenomenon which has asymmetryinput and output. How to improve the efficiency of equity incentive has become animportant concern. The main purpose of this paper is to find out the short-term marketefficiency and the long-term performance efficiency of the equity incentive and toexplore how the control rights’ allocation affects the equity incentive efficiency with thestochastic frontier analysis method. The results can help improve the efficiency of equityincentive and promote the long-term and healthy development of equity incentive inChina’s listed companies. According to the characteristics of this subject, the combiningof qualitative investigation and quantitative investigation, normative analysis andempirical study are used as researching method.First of all, briefly review the related literatures which focus on the equity incentivesaffect and give the concept of equity incentive, efficiency, equity incentive efficiency,control rights’ allocation. Then introduce the stochastic frontier analysis method whichcan be used to measure the efficiency of equity incentives. The principal-agent theory,human capital theory and contract theory are also summarized in this paper.Secondly, the current situation of equity incentives in China’s listed companies isanalysed from the angle of fundamentals and control rights’ allocation. Then interpret indetail how the control rights’ allocation will affect the equity incentive efficiency and putforward the relevant hypothesis.Again, using the short-term and long-term stochastic frontier analysis modelrespectively to empirical analysis the short-term market efficiency and the long-termperformance efficiency in listed companies of China from the control rights’ allocationperspective. The results show that the short-term market efficiency is relatively high, butthe long-term performance efficiency is relatively low. The State-owned ultimate holding company with the low equity concentration degree and high executive holdings has bothhigh short-term and long-term incentive efficiency. If the company’s equity balancedegree is low, the shor-term market efficiency is high but the long-term performanceefficiency has no significant difference. The company whose Chairman and GeneralManager are acted by one person has low short-term market efficiency and highlong-term performance efficiency.Finally, according to the conclusions of the qualitative and quantitative analysis,put forward suggestions to improve the efficiency of equity incentives in China’s listedcompanies which including optimizing the structure of company’s control rights’allocation, setting reasonable equity incentive programs and improving the externalmacro environment.