Equity Incentive,Agency Costs And Corporate Performance

As in the economic transition period, Chinese listed companies has a Concentration of equity different from the equity of dispersion raised by conventional classical literature, and controlled by the major shareholders in most of them(Xingquan Yang etal, 2012). In particular, private listed enterprise, have highly concentrated distribution of equity, so traditional corporate governance mechanisms have merely no use to private listed enterprise.To promote social economy continues, we must solve the major shareholders of private listed companies. Wenqiang Chen etal(2015) suggested it has been proved that equity incentive has played an active role in reducing agency costs. But lots of empirical studies have found lately implementation of equity incentive is not ideal. Get to the bottom, in addition to first category agency conflicts between shareholders and managers, we cannot ignore the second category agent problem, destroying management incentives controlled by a big shareholder. Along this line: what happened when we bring equity incentive into dual agency framework,meanwhile how to improve the corporate governance mechanism to balance these two types of proxy conflict.Because most will remain been centralized, so we explore what call for modern corporate governance practices in the established dual agency structure for the implementation of the equity incentive.It will provide a new ideas about improving the corporate governance mechanism to safeguard the interests of outside investors.Equity incentive has an positive effect on business performance by reducing agency costs, and Wenqiang Chen etal(2015) summarized equity incentive’s effect on enterprise performance mediation effect model summarized as "Equity incentive-Agency Cost-Corporate performance." as the main line in this article, the author combines case studies with normative research methods, aimed at a double agency problem, embeds the incentive, agency conflicts and firm performance into specific case, through the dynamic process of case studies reveals the relationship between variables, by this way,we can know about the modern corporate governance practices’ demand on how overcome the dual agency to enhance business performance by equity incentive.The study found that under the control of the big shareholders in listed companies, although the implementation of equity incentive can ease the problem of agents, reduce agency costs, and improve the company’s performance rapidly in the short term.;after the implementation of equity incentive, conflict in the second class of agents, however, is still serious. Further it found that the big shareholder returns at the expense of minority shareholders, which reduces the overall level of company returns.thereby affecting the management of performance-based on compensation and equity earnings, weakening the incentive effects.So modern corporate governance mechanism should not only supervise the management but also pay more attention on the Controlling Shareholders’ constraints. this paper can complain about differences on the conclusion between management incentives and corporate performance in the existing literature,and provide useful direction on how to meet the corporate governance practices.