Equity Incentive and Operational Risk: An Analysis Based on Fixed Effects Model

Abstract

Different people think that the impact of equity incentive system on business risk is different.In this paper, the impact of equity incentive on corporate risk is investigated. Based on descriptive statistical analysis, correlation coefficient matrix, univariate analysis and basic regression analysis, it is found that equity incentive is positively correlated with the company operation risk. Moreover, after a series of robustness tests, the relationship is still significant, including surrogate indicators, fixed effects and adding missing variables. Furthermore, we find that equity incentive has a greater impact on business risk when the proportion of investors holding shares is low. Nevertheless, it has no impact when the proportion of investors holding shares is high. These results support the view that equity incentive can improve the company operation risk, which shed light for the implementation of equity incentive in China's listed companies.