The Research Of The Influence Of Equity Incentive Level On Corporate Risk-taking

Equity incentives were initially initiated in the United States,where ownership and management rights were separated due to increasingly clear corporate responsibilities and changing ownership structures.The principal-agent problem arises.Because shareholders and managers have different ways to obtain income,and the utility function of income is different,managers will first consider their own interests and make decisions that violate the will of shareholders in the daily operation of the company,which is not conducive to the long-term development of the company.At the same time,shareholders are not able to supervise the behavior of managers at all times,which makes it more difficult to solve the problem of principal-agent.Equity incentives are the primary choice for closely linking managers and shareholders’ interests.They can effectively solve the above problems and are called "golden handcuffs," to solve the problem of principal-agent.Since the formal implementation of the equity incentive system in China in 1993,the state’s policies and laws supporting the equity incentive system have been continuously revised and completed.Equity incentives have become the main means of long-term incentives for domestic listed companies.Corporate risk-taking refers to the company’s attitude and relative response to risk.The problem of principal-agent problem in the company’s risk-taking is that there is a difference between the management and the shareholder’s risk-taking of the company.The shareholder is relatively risk-neutral,and the manager is a risk averse,and He is more inclined to pursue projects with stable returns.This tends to deviate from shareholders’ expectations and also creates high agency costs.This paper believes that the equity incentives that can solve the agency problem and reduce the agency cost can also effectively alleviate the conflicts between shareholders and managers in the company’s risk-taking.In terms of theory,firstly,based on principal-agent theory,this paper conducts regression analysis about the influence of equity incentive on the risk bearing level of a company,and finds that the influence of the former on the latter is positive and significant.The implementation of equity incentive can enable managers and shareholders to form a community.of interests to a certain extent,which helps managers overcome the tendency to avoid risks,dare to pursue high-risk and high-return projects,and improve the risk bearing level of the company.Second in the core of the behavioral finance,prospect theory,on the basis of the expected performance level as a reference point,the gap with the actual performance level performance expectation gap as regulating variable,explored the different performance under the expectation gap,the change of the equity incentive risk bearing positive influence on the company:when the performance is expected to drop of timing,managers decided that in the revenue range,dislike and avoid risk;When the performance expectation gap is negative,the manager identifies the loss range,preference and pursuit risk.The adjustment function of the difference of expectation level in different direction is different.Three hypotheses are put forward.In empirical aspect,this article selects on January 1,2010-December 31,2017 a-share listed companies as the sample,the quantity and company executives shareholding ratio of the number of shares as indicators of the company equity incentive level,will return on the stock market volatility as the indicators of risk exposures,adjust through the industry of the weighted average return on equity as A corporate performance indicators,comparing with expected results after adjusting variables.At the same time,other financial indexes are added as control variables to establish a multivariate panel regression model to test whether the theoretical assumptions are correct.In summary,this paper discusses the correlation between equity incentive level and corporate risk taking,and discusses the influence of the difference between positive and negative performance expectation on the relationship.The following conclusions are drawn:The level of equity incentive has a positive impact on the company’s risk taking,and the level of positive performance expectation will reduce the positive impact of equity incentive on the company’s risk taking,while the level of negative performance expectation will promote the level of equity incentive on the company’s risk taking.At the same time,the company can adjust the risk taking by changing the manager’s salary incentive,financial leverage and company size.In view of the above conclusions,the following Suggestions are proposed in this paper:First,develop business strategies in advance to prevent changes in risk taking.Second,pay attention to the company’s historical performance and reasonably refer to the expected gap.Third,improve the equity incentive plan to ensure that senior executives make cautious decisions.