On The Improving Effect Of Equity Incentive On Corporate Value

With the continuous development of reform and opening up,in recent years,more and more rising enterprises have emerged in China,which are full of vitality and energy.However,it will inevitably encounter twists and obstacles in the way of development and innovation.It is the key reason that these enterprises are lack of innovation.Innovation is indispensable to the development of everything,and it is also the core of the pullulate of enterprises.The fundamental reason for innovation is the need for the person who is with ability.Therefore,the encouragement of talents is the key to the development of enterprises.Equity incentive is a good system.However,in the process of implementing equity incentive in China,many problems have emerged.Firstly,the principal-agent problem is one of the core issues.At present,developed countries abroad have recognized that equity incentive is an important means to solve the principal-agent problem of modern companies.Because of the information asymmetry between company managers and company owners,ownership and control rights have not been centralized,which makes the company's managers and owners are not one person.For the purpose of chasing personal interests,managers may be contrary to the company's overall interests.Secondly,according to the equity incentives implemented by Listed Companies in China,too short exercise period is also a question,which directly leads to poor long-term incentive effect of equity incentive.On the one hand,it provides company executives with the opportunity to manipulate the holding price,on the other hand,it also endangers the company's long-term development.In addition,the effectiveness of China's current capital market needs to be improved,which also directly leads to the management's hard work cannot be reflected in the market share price in time,and it will dampen the enthusiasm of management.In addition,there are also many other problems about the equity incentive in Chinese companies.Consequently,how should we avoid the shortage of equity incentive scientifically and make full use of equity incentive? The equity incentive system implemented by HUAWEI Technology Limited has given us a good inspiration.HUAWEI Technologies Co.,Ltd.is a private telecommunications technology company that produces and sells telecommunications equipment.Up to date,Huawei has become the leader of China's telecommunications industry.From the way of its development,we can find that Huawei is not always smooth.At the beginning of its establishment,Huawei is also facing financing difficulties and brain drain.So,how did Huawei overcome these difficulties and stand out in such a fierce market competition? This paper holds that equity incentive is one of the most important factors,it helped Huawei to hold on talents and brings continuous motivation to employees,all of these helped Huawei to develop and progress sustainedly.This paper mainly adopts the method of case study and literature study.In the part of literature study,starting by reviewing the relevant literature of domestic and foreign expert and scholars on the impact of equity incentive on corporate value,the long-term convergence effect,trench effect,short-term effect and equity incentive on senior managers are discussed.A theoretical overview of the impact of managers is made.In the case study part,by using the method of event study and index analysis,we select Huawei's equity incentive system as a case,and conduct in-depth analysis to study the benefits of Huawei's equity incentive system on Huawei's corporate value.To sum up,this paper attempts to start with the success of equity incentive of Huawei Technology Co.,Ltd.,through analyzing the equity incentive measures of Huawei,exploring the effect of equity incentive and how equity incentive can enhance the value of the company,hoping to provide reference for some enterprises which is in the process of innovation and development.