Can Equity Incentives Lead To Executive Opportunism?

Equity incentives link executive compensation with long-term business performance,so academics and practitioners generally see it as a tool for long-term incentives.In general,equity incentives can provide long-term incentives for specific people in listed companies that have or will contribute to the company's development.The equity incentive hopes that the incentive objects and the enterprise are related to each other and share the benefits,so that they can maximize their interests while protecting their own interests and reduce individual opportunistic behavior.However,the stock price of GEM companies after listing is generally overestimated.If executives receive equity incentives before the IPO of the company,then the value of this directly held company stock will also rise.With this temptation,Some executives may choose to convert the stock into a real wealth.However,according to the provisions of the Company Law of the People's Republic of China,senior managers of listed companies can only transfer less than 25%of their shares held by the company each year while they are in the company;if executives leave the company,they can stay in the second place six months after leaving the company.Markets sell their shares of the company.Therefore,under the background of China's corporate law arrangement,executives want to cash out their holdings as soon as possible.The best way is to leave the company in the short-term and these former executives can sell the company's shares held in advance.Out to get cash income.Since the founding of the GEM in 2009,the phenomenon of the rapid departure of listed company executives in the short-term after the listing has occurred frequently,and it is also common for the GEM executives to "depart from office".Therefore,there may be a correlation between the phenomenon of the departure of senior executives from listed companies on the GEM and the benefit from cash outflows.This article starts with the phenomenon of the departure of executives in the short-term after the IPO of GEM companies,and builds new research scenarios.The study finds that if the company's equity incentive policy before listing,the lack of a reasonable institutional arrangement,it will easily lead to the company's post-market executives Behavior.This article makes a detailed theoretical analysis based on the relevant domestic and foreign literatures,and combines the characteristics of China's GEM.It puts forward the main assumptions of this paper and designs the model to test the hypothesis.In the empirical part,this paper first descriptive statistics of the sample data,and then use Statal4 software to carry out Logistic regression model,and analyze the regression results.Specifically,this article uses the 2009-2016 GEM listed companies as the research object to observe whether the equity incentives before the IPO will have an impact on the turnover rate of senior executives in the short-term after the listing,and examines the impact from different perspectives.The study finds that:Prior to the IPO,the equity incentive will significantly increase the possibility of the senior management leaving the company in the short term.There is a significant positive correlation between the two;at the same time,the company's total asset net interest rate and corporate governance level will have a regulatory effect on the above relationship.The higher the performance of listed companies and the higher the proportion of independent directors in the total number of senior executives,the lower the probability that executives will leave the company after being listed.In addition,the nature of the equity of listed companies will also affect the pre-IPO equity incentives and senior management.The positive correlation between turnover and the positive correlation between equity incentives and the departure of senior executives is more significant in non-state-controlled companies.The Notice on Further Regulating the Purchase and Sale of the Stocks of Directors,Supervisors,and Senior Management of Listed Companies on the Growth Enterprise Board by the Shenzhen Stock Exchange on November 4,2010(hereinafter referred to as the "Notice")provides another issue for the study of this article.Inspection ideas.The "Notice"restricts the stock transfer behavior of resigning senior executives within six months from the company's listing,and it can,to a certain extent,impair the motivation of executives to quickly withdraw cash.This paper uses the publication of this notice as an exogenous event to construct a dual difference model to examine the separation behavior of senior executives.The test results show that after the release of the"Notice",the probability of resignation of senior executives has been significantly reduced.This shows from the side that executives may resign quickly after the company's listing to sell off stock arbitrage and support the research hypothesis of this paper.Finally,this paper uses different methods to test the robustness of the model's regression results.All of these confirm the main assumptions of the paper and show that the conclusion of this paper is robust.This paper attempts to link the stock incentives with the opportunist behavior of senior executives.Starting from the phenomenon of the resignation of executives after the listing of the GEM,it empirically tests whether the executives have the incentive to resign cash,thus revealing the short-term nature of stock incentives.Different from previous studies,which mainly concern the implementation of equity incentives after the listing of the company,this article focuses on the company's equity incentives before the listing;in addition,this article selects the data from the opening of the GEM to the retirement of senior executives on 2016.12.31.This enhances the reliability and representativeness of the conclusions of this study.Based on the specific scenarios of IPO,this paper points out some possible problems in the GEM market under the existing regulatory system and institutional background,and provides some empirical evidence for further improving the GEM market.This article provides new thinking direction for the academic and practical circles from another aspect:if there is no perfect system design,the equity incentive policy may also lead to the short-term behavior of the senior executives,thus deviating from the original intention of implementing the equity incentive policy.This provides some inspiration for the formulation and supervision of equity incentive policies:If a listed company attempts to use equity incentive policies to achieve long-term incentives,it first needs to establish a more complete corporate governance mechanism to curb the opportunistic behavior of senior executives;It will be able to formulate more stringent guidelines for the listed company's equity incentive policies to regulate the behavior of the company and its executives.