Research On The Mechanism Of Equity Incentive To The Sustainable Development

The agent problem caused by the separation of powers is prevalent in modern companies.Managers have a strong incentive to deviate from the company's optimal investment for their own interests,which results in over-investment or under-investment,causes inefficient investment and consequently damages the company's long-term sustainable development.The equity incentive system is regarded as a kind of method which can effectively solve the agent problem and has received the attention of academia.Some scholars believe that the implementation of equity incentive can inhibit the company's inefficient investment and improve the company's investment efficiency.There are also some scholars who found that the implementation of equity incentive has a significant role in promoting the company's long-term development.But few scholars pay attention to the relationship among the three factors,that is,whether the equity incentive can promote the company's long-term sustainable development by improving the investment efficiency.Therefore,this paper attempts to study the mechanism of equity incentive to the sustainable development of the company by inhibiting inefficient investment.This paper argues that the implementation of equity incentive can have a positive effect on the sustainable development of the company by direct and indirect channels.On the one hand,based on the principal-agent theory,the implementation of equity incentive can unify the interests of managers and owners and promote managers to work harder to improve the company's management standing in the perspective of company's owners.Therefore,the implementation of equity incentive can affect the company's sustainable development directly.On the other hand,based on the principal-agent theory and the net present value theory,the implementation of equity incentive can reduce the agency costs and promote the managers to choose the investment projects which the net present value is positive.Thereby it can suppress the company's over-investment or alleviate under-investment And then achieve the company's sustainable development.Therefore,this paper argues that the implementation of equity incentive can affect the sustainable development of the company by influencing the investment efficiency,and this relationship is more obvious in the company with serious agent problems.Based on the above logic,this paper takes the 'listed companies of Shanghai and Shenzhen A shares as the research samples,selects the panel data of the listed companies from January 1,2007 to December 31,2015,analyzes and studies the equity incentive to the sustainable development of the company and the influence mechanism.This paper finds that:(1)the implementation of equity incentive can alleviate under-investment or suppress over-investment and improve investment efficiency;(2)The implementation of equity incentive can encourage managers to,promote sustainable development of the company;(3)The implementation of equity incentive can promote the sustainable development of the company by improving investment efficiency.In theory,the research of this paper reveals the mechanism of equity incentive to promote the sustainable development of the company by improving the company's investment efficiency,which enriches the academic literature on sustainable development.In practice,the conclusion of this paper is instructive to improve the investment efficiency and construct the sustainable development strategy for the listed companies.