Research On The Effectiveness Of Executive Ownership In The Listed SOEs

Executive ownership incentive is one of the important parts in corporate governance mechanism. Since the Chinese government issued a regulation in 2006,205 listed enterprises has been implement ownership incentive to the executives. Nowadays, the number of listed company that put the regulation of ownership incentives into effect has been increasing. However, whether ownership incentives can motivate the executives to invest their human capital more and thus reduce the principal-agent cost has no definitive answer. The contract between executives and the shareholders in Stated-Owned Enterprises (SOEs) is incomplete and the effect of executives ownership incentives need to be analyses from the aspects of decision-making mechanism. This article uses the model of contracts as reference points to do the research about the effectiveness of executives'ownership based on the non-contractible investment perspective.We build a contract as reference point model to test whether the executives in SOEs make non-contractible investment if they are given a certain amount of equity. Meanwhile, the executives'behavior and the different impact on business performance in SOEs are discussed in this article when equity allocation is carried out. The allocation of equity can increase the executives outside options, acquire more residuals, and reduce the incentive distortion problem ex ante, so it is optimal to assign asset ownership to those whose investments are most important. When the executives in SOEs are given a certain amount of stock rights, the relationship between shareholders and executives is changing from independent market transactions into a firm's internal trade. The executives will make non-contractible investment in order to maximum their self-interest and thus improve the performance of SOEs.We use stated-owned enterprises between 2009 and 2014 as samples, build the measurement indicator of non-contractible investment, and employ simultaneous model to test the effectiveness of executives'ownership in SOEs. The result shows that asset ownership, executives'non-contractible investment and the SOEs'performance are mutual promotion. The ownership incentive can motivate the executives in SOEs make non-contractible investment and thus increase the enterprises'value. Moreover, the better performance of stated-owned enterprises, the stronger wish of executives to hold more equity and the executive are more willing to make non-contractible investment. Finally, we put forward suggestions that the equity incentive system of SOEs needs to be improved, the implementation of state-owned listed company equity incentive plan needs to be supervised and professional manager market needs to be built and improved.