Research On The Influence Of Continuous Equity Incentive On Earnings Persistence And Its Mechanism

The separation of ownership and management rights has laid the foundation for the development of modern joint-stock companies.But at the same time,it has also caused the principal-agent problem that shareholders and the management have different interest objective functions.Under this context,equity incentive is widely regarded as a long-term incentive mechanism to alleviate agency conflicts,retain core talents and promote performance growth,which has attracted wide attention from both theoretical and practical fields.The Administrative Measures for Equity Incentive of Listed Companies(for Trial Implementation)issued by the CSRC in December 2005 marked the beginning of the exploration phase of equity incentive of listed companies in China.Relevant theories and practices have developed vigorously.At the same time,more and more listed companies start to realize the importance of long-term equity incentive measures and try to establish a more sustainable equity incentive mechanism.On the other hand,the scientific design of continuous equity incentive plan is rather difficult,since the continuous equity incentive plan needs to consider continuous changes of key terms and the interest game and interest coordination between different batches.It is much more complex than the single equity incentive plan and more likely to lead to incentive deviation.Therefore,it is of great value and practical significance to study the impact of continuous equity incentive on earnings persistence,and guide the equity incentive design more scientific based on this,so that it can better play roles in achieving long-term stability and sustainable development.This paper selects Hikvision,a high-tech enterprise,as the research object,and uses the research methods of case analysis,comparative study and event study to analyze the impact and mechanism of action of the company’s continuous equity incentive plan on earnings persistence.First,this paper combs the relevant literature and research results of the core concepts "continuous equity incentive" and "earnings persistence",and categorizes them,providing a theoretical basis for the following research.Secondly,this paper constructs the theoretical analysis framework and summarizes the institutional background and development status of equity incentives.Then,taking Hikvision as an example,based on the data of the case company,this paper analyzes the impact and mechanism of continuous equity incentive on earnings persistence,analyzes each link of the action path,and analyzes the problems in the equity incentive plan of the case company.Finally,the following conclusions are drawn:first,continuous equity incentives can have a positive impact on earnings sustainability,and its main path is "continuous equity incentives-continuous innovation ability-earnings sustainability";second,the implementation of the continuous equity incentive plan is conducive to promoting the sustainable innovation capability of senior executives and employees from the perspective of input and output respectively;third,the improvement of continuous innovation capability has a significant effect on earnings persistence which is reflected in the long-term improvement of profitability and the lasting stable growth of earnings quality.The innovation of this paper lies in: first,this paper focuses on the sustainable and dynamic design of the equity incentive plan.The existing researches generally analyze and compare the single-period equity incentive.This paper focuses on the continuous and dynamic design of the equity incentive plan with the continuous and multi-period equity incentives as the research subject;secondly,this paper measures the long-term incentive effect.Most of the existing studies are limited to discussing the incentive effect under short-term incentive plans.This paper selects earnings persistence as a measurement indicator,focuses on the incentive effect under the long-term measurement,which corresponds to the long-term equity incentive plan;thirdly,this paper explores the mechanism of the impact of equity incentives on earnings persistence,which fills the gap of existing researches in terms of research methods and mechanisms.The limitations of this paper are: first,in terms of the indicators to measure earnings persistence,as the existing literature is mostly empirical papers and the literature to measure earnings persistence by using financial indicators is rare,the theoretical system of this paper is imperfect;secondly,this paper only selects one single representative company for analysis.Because its operation and management have obvious industry characteristics,the conclusion of this paper is only applicable to high-tech industries and companies with the same characteristics,which is not universal.