The Influence Of Executive And Non-Executive Employee’s Stock And Option Ownership Of Equity Incentive Method On Corprate Risk

In China, the equity incentive method has developed three stages, and it is in the fourth stage now. In general, equity incentive method includes two forms, one is the manager and important non-executive employee incentive system, the other is the employee stock ownership plan. In foreign countries, both forms have developed rapidly. The relative academic research is also developing rapidly and the object of study is gradually extending from equity incentive to different subject matters and incentive targets. The equity incentive has been the focus of academic research from 2006 when it published formally in China. After the economic crisis in 2008, scholars began to consider the relation between equity incentive and corporate risk. New research considers the effects that equity incentive influences the corporate risk depending on the subject matters and incentive targets. Foreign countries already have some relative research. However, the research on incentive subject matters is less in China, most of which belong to earlier studies. Because the sample size is small, the impact of incentive subject matter on risk is inconspicuous in the statistics. In addition, non-executive incentive has always been ignored in the study.The purpose of this paper is to explore the influence of the executive and non-executive employee equity incentive on corporate risk. Equity incentive in this paper means the total equity including the restricted stock and option. Therefore, executive incentive and non-executive incentive all refer to the total equity of the incentive targets. In terms of executive incentive, the paper wants to verify the effects of executive’s total equity on the corporate risk and tests the different effects by subdividing the equity incentive into stock ownership and stock options ownership. In terms of non-executive incentive, this paper analyzes the effects of non-executive employee’s total equity on the corporate risk, and detects the difference effects of non-executive employees when executive has stock ownership or stock options ownership. Finally, deep study was made by grouping the corporate according to the level of corporate governance and nature of business. The main contents are as follows:The first chapter is the introduction of this paper. It describes the scope, history and the background of the equity incentive in China. It also summarizes the research significance, briefly discusses the relative issues and the research ideas.The second chapter summarizes the theoretical basis of equity incentive and domestic and foreign research on executive equity incentive and non-executive equity incentive. It also verifies the mechanism that the executive and non-executive affects corporate risk.The third section of this paper introduces six research hypotheses based on the research questions relative documents. Combined the research model of Bova and Kolev with the Chinese actual situations and relative research, this paper establishes relative models and describes the methods about defining and measuring the variables in the models.The fourth chapter lists the sources and empirical analysis process of the sample in this paper. It demonstrates the executive incentive increases the corporate risk, especially when the executive employees hold options. But when the executive employees hold restricted stock, it does not increase the corporate risk, even reduce the risk. In contrast, non-executive equity incentive decreases the corporate rise, especially when the executive employees hold options. The influence is similar in both private enterprises and state-owned enterprises. Furthermore, executive employees holding stock options increases more risk and the non-executive employees holding stock decreases more risk under following situations: there are less independent directors in the board of directors.The fifth chapter summarizes conclusions of empirical analysis and lists deficiencies of this paper and the possible research directions.The innovation of this paper is separating the different types of subject matters and incentive targets to demonstrate the different effects of executive employees holding stock and stock options on corporation risk. At the same time, it explores the executive incentive decreases the corporate risk from theoretical and empirical analysis. On the other hand, most of domestic researches focus on the relation between equity incentive and performance, this paper explores the impact of equity incentive on the corporate risk. This paper divides the companies into different groups depending on the proportion of independent directors and the nature of the actual controller to explore the different impacts of executive and non-executive incentive on risk in different groups.