Research On Equity Incentive Effect Of Listed Companies In China

With the development of modern economies,the agency problem in corporate governance becomes more conspicuous.Equity incentive plans are one of the methods that effectively resolve this problem.Equity incentive plans,which grant a number of stock shares to managers and important employers,induce these beneficiaries to make decisions from the perspective of shareholders instead of just from their own.It helps to relieve the conflicts between agents and principals of companies.Since January 2006 China’s Securities Regulatory Commission issued the Methods of Managing Stock Incentive Plans of Listed Companies,more and more listed companies issued their equity incentive plans.Nevertheless,equity incentive plans are still under-developed in comparison with the size of China’s capital market.On the other hand,China’s listed companies are still inexperienced in applying equity incentives.As a result,there are significant number of omissions and weaknesses in some list companies’ released share incentive plans.In this thesis,I conduct theoretical analysis and case study to investigates the impacts of equity incentive plans on listed companies’ performance.The findings of this thesis may shed light on future improvements in applications of equity incentive plans.I choose the three equity incentive plans of the Hengrui Medicine Group(thereafter HMG),a Jiangsu based listed company,as the focus of this thesis.HMG released its first equity incentive plan in 2010 and since then has released another two.Each plan had three phases of execution and was different from plans released before in details,especially the third one which was special in the beneficiaries of equity incentives,the vesting schedules,and the shares set aside and thus is worthy of particular attention.The main goal of this thesis is toevaluate the impacts on the performance of HMG of the three equity incentive plans.It may serve as a reference for companies which consider applying similar plans.Based on existing literature on equity incentive plans,this thesis evaluates the impacts of equity incentive plans on HMG’s stock performance,financial and non-financial performance.I use CA and CAR as indicators of short-term performance in stock market.Various financial and non-financial indicators are used to evaluate the long-term impacts of equity incentive plans.The event study method by comparing performances before and after execution of equity incentive plans is used.Main indicators that I use include cumulative abnormal return(CAR),R&D expenditure,human capital structure,patents,attrition rate of beneficiaries,and management of sales.The main contribution of this thesis is to evaluate the short-term and long-term performance of the HMG before and after each equity incentive plan in comparison with its stated goals in each plan.I find that equity incentive plans executed by the HMG had significant positive impacts on its stock market performance in short term.Equity incentive plans led to better profitability in the long term and laid solid foundation for the development in even longer terms.I also find that equity incentive plans helped to reduce attrition rate of key-employees and improved the R&D efficiency in the HMG.