The Effectiveness Research Of Equity Incentive And Investment Decision-making

Equity incentive as a future interests distribution between shareholders andmanagement contract, is believed to be the important tool which could solve enterpriseprincipal-agent problems effectively. Equity incentive is commonly practiced among theexecutives of listed companies in western capital market developed countries, whichbecome an important part of executive compensation. The most direct effect of equityincentive is affecting management behavior, it makes the enterprise senior managementdecision-making behavior closely linked with company’s long-term development. Since2005, the securities and futures commission, state-owned assets supervision andadministration commission, the ministry of finance and the stock exchange and otherrelevant laws and regulations and regulatory documents releasing, rapidly promote thebehaviour of the implementation of equity incentive listed companies in China, therelationship between listed company equity incentive practice and company’s investmentbehavior become a hotspot in theory research. Whether the inefficiency investment of acompany is suppressed because of equity incentive? It is true that in different life cyclestages of the enterprise, the management equity incentive have the same governance effect?How much equity incentive and management governance factors can affect theinefficiency of investment of a company?The related problems are in urgent need offurther research.Considering in different life cycle stages,the investment characteristics, cash flow andmanagement pattern of an enterprise must be vary, which lead to different investment tend.Therefore,this paper divides the life cycle stages according to the characteristics of thelisted company cash flow, studing relationship between equity incentive and investmentbehavior.This paper use relevant research literature at home and abroad for reference,theoretically defines the concept and connotation of the underinvestment andoverinvestment. This paper also analyzes the reasons of investment efficiency andformation mechanism about inefficient investment in different life cycle of thecompany.Analyzing different cycle characteristics, optimization of equity incentive for theinvestment behavior of listed companies, the influence of different institutionalarrangements for the inefficient investment, etc.On the basis of statistics about presentsituation of the implementation of equity incentive in listed companies in our country, according to the different cycle enterprise features,we make hypothesis about itsinvestment propensity, using regression model to test, further investigating how equityincentive affect the inefficient investment under different institutional arrangements.The research results show that the initial more show the inadequate investment oflisted companies, the implementation of equity incentive for their initial level of theinadequate investment of listed companies have no significant effect; Growth ofwidespread phenomenon of lack of investment of listed companies, the implementation ofequity incentive effectively restrain the underinvestment tendency; Mature moreperformance for excessive investment of listed companies, the implementation of equityincentive increased the degree of excessive investment company. Chairman of the board ofdirectors and managers have two separate supervision and restraint function for the placeof the life cycle of different and different, the higher the ownership concentration, themore tend to be irrational investment behavior.Aiming at the conclusion of the empirical analysis, in terms of compensation contractdesign, proposed targeted incentive strategy, and the combination of both short-term andlong-term incentive and the combination of fixed and variable wage income etc.Countermeasures and Suggestions; In the related mechanism construction, to perfectenterprise internal and external operating environment, put forward policy suggestion toimprove the capital market and manager market.