| The implementation of China’s shareholding reform has alleviated the phenomenon of "different shareholdings" and "one share only" in listed companies and enabled the shares held by executives of listed companies to circulate in the secondary market,which is of great significance in improving the development of the capital market.To a certain extent,the reduction of shareholdings by executives can improve the shareholding structure of companies,bring into play the value of executives’ human capital and achieve optimal allocation of resources.However,in recent years,the phenomenon of executive holdings has been spurting,only in 2020,the sample data of 1,248 listed companies in Shanghai and Shenzhen Ashares,accounting for 45% of the listed companies in Shanghai and Shenzhen A-shares in the sample year,nearly half of the listed company executives to reduce their holdings,the reduction amounted to 712277.34 million yuan yuan,the scale of the reduction should not be underestimated.Although the regulator has introduced a number of regulatory policies,but the phenomenon of executive shareholding reduction is still very common.The essence of executive reduction is a corporate governance issue.The control and information advantage that executives have is derived from the benefits that shareholders give to executives at the expense of not running the company under the separation of powers,and the boundaries between the two are diminishing,thus giving rise to a principal-agent problem between shareholders and executives.Since Jensen and Meckling proposed principal-agent theory,incentives have been used as an effective mechanism to resolve conflicts between principals and agents.Unfortunately,however,few scholars have studied how different incentive approaches affect executive shareholding reductions.In addition,executives may reduce their holdings for different motives,which are mainly divided into conventional and opportunistic ones.Conventional reduction is mainly based on stock liquidity and diversification of portfolio to diversify the risk brought by concentrated holdings and to achieve optimal allocation of resources,while opportunistic reduction is mainly based on maximising their own interests,through information manipulation or timing transactions to buy and sell the company’s shares to obtain huge cash gains.Then there is a difference in the incentive for executives to reduce their shareholding whether there is a difference in the motivation to reduce their shareholding.In the current context of generally poor corporate governance in China,whether incentives can play a role in corporate governance remains to be studied in depth.Based on this,the article incorporates explicit and implicit incentives into the same research framework and integrates different incentive approaches to explore the long-term mechanism of governance of executive shareholding reduction from an incentive perspective,and further explores the differences in the above relationship between conventional and opportunistic shareholding reduction,the level of corporate governance and the nature of property rights.The article summarises the literature on incentives and executive behaviour at home and abroad,and explains the mechanism of different incentive methods on executive shareholding reduction based on principal-agent theory,tournament theory,behavioural theory,incentive theory and insider trading theory.The study finds that:(1)equity incentives significantly exacerbate executive shareholding reductions;there is no significant difference between the two main types of equity incentives,namely stock options and restricted shares,in terms of their contribution to executive shareholding reductions.(2)Pay disparity significantly exacerbates executive shareholding reduction.(3)Promotion incentives significantly inhibit executive shareholding reduction.(4)After distinguishing between opportunity and conventional holdings,it is found that equity incentive intensity,pay gap and promotion incentive are consistent with the main test in the opportunity and conventional holdings sample groups.However,the intensity of equity incentive significantly exacerbates the opportunity reduction of executives but has no significant effect on the conventional reduction;the pay gap significantly exacerbates the opportunity reduction of executives but has no significant effect on the conventional reduction;the promotion incentive significantly inhibits the opportunity reduction of executives but has no significant correlation with the conventional reduction.(5)After differentiating the level of corporate governance,it was found that the relationship between the strength of equity incentives and the increase of executive cutbacks was stronger in the sample group with lower level of corporate governance than in the sample group with higher level of corporate governance;the relationship between promotion incentives and the inhibition of executive cutbacks was significant in the sample group with higher level of corporate governance but not in the sample group with lower level of corporate governance.(6)After distinguishing the differences in ownership,it is found that the relationship between equity incentives and pay disparity in exacerbating executive shareholding reduction is more significant in the SOE sample group,while the relationship between promotion incentives in inhibiting executive shareholding reduction is more significant in the non-SOE sample group.The article combines the theoretical and empirical findings with Chinese practice to provide suggestions on how listed companies can explore a long-term mechanism to manage executive shareholding reduction from an incentive perspective,improve corporate governance,protect other stakeholders and promote high-quality stock market development. |
