The Impact Of Equity Incentives On Inefficiency Investment

As an incentive mechanism to alleviate agency conflicts and reduce agency costs,equity incentives have developed relatively mature in Western countries.In contrast,the implementation of equity incentive in China is still in its initial stage,with a short implementation time and a small number of implementation.Since the CSRC promulgated the "Measures for the Administration of Equity Incentives for Listed Companies(Trial)" in 2005,the implementation of equity incentives in China has been formally guaranteed by the system.Due to the proxy conflicts generated by the principal-agent theory,managers tend to deviate from normal decisions when making decisions,resulting in inefficiency investment.As a long-term incentive mechanism,equity incentive can promote managers to make decisions based on the overall interests of enterprises and reduce inefficient investment behavior.On the other hand,it may also cause managers to use their powers to intervene in the design of equity incentive schemes to generate power rent-seeking phenomenon.Therefore,listed companies should pay attention to the effectiveness of equity incentive as a“double-edged sword".The implementation effect of equity incentives depends on the design of equity incentive schemes.As two elements of incentive contract,incentive mode and incentive validity period have an important impact on the implementation effect of equity incentive.Therefore,this thesis studies the impact of equity incentive on inefficient investment from the perspectives of incentive mode and incentive validity period.Taking the data of A-share listed companies from 2013 to 2017 as samples,this thesis first studies whether the implementation of equity incentives can restrain inefficient investment as a whole,and finds that there is a negative correlation between equity incentives and under-investment and over-investment,which is significant at the level of 5%and 1%respectively.This fully demonstrates that equity incentive can restrain inefficient investment.Next,from the perspective of incentive model,this thesis studies the impact of stock option incentive and restricted stock incentive on inefficient investment.The study finds that the implementation of restricted stock is more significant in alleviating the phenomenon of under-investment,but it has no obvious effect on restraining over-investment.Finally,from the perspective of the incentive period,the impact of equity incentives under different validity periods is studied.The study found that compared with the equity incentives with a validity period of less than 5 years,equity incentives with a validity period of greater than or equal to 5 years are more significant for suppressing inefficiency investments.Studying the impact of equity incentive on inefficient investment not only improves the implementation effect of equity incentive,but also provides a way to improve the efficiency of investment.From the perspective of incentive model,this paper explores the incentive effect of implementing restricted stock and stock option,so as to promote listed companies to choose incentive model better.At the same time,dividing the validity period of equity incentive and studying the impact of the validity period of incentive on inefficient investment can make listed companies pay more attention to the design and improvement of equity incentive plan.In this way,managers and owners' interests can be closely linked,which helps to improve managers' investment decision-making ability and reduce inefficient investment behavior.