Abstract
Whether equity incentive has the ability to enhance the value of the company has been be widely noted by the capital market. This study took 19 listed companies which were in the first batch of the implementation of equity incentive in 2006 as samples, used the event study methodology to study the short-term response in the market after the announcement of equity incentives, used the descriptive statistical analysis to test financial performance differences between before and after the equity incentive announcement and compared the short-term response and long-term financial performance. The study results show that, during the period in this study, the announcement of the equity incentive doesn't produce significant changes on stock market and there is synchronization between the performance of the company and management equity incentive level, the shareholding ratio of the top ten, company size, but there is no significant correlation between the equity incentive and performance of the company.
Highlights
As the corporate control right and ownership separates, the agency problems between managements and shareholders become an important issue in corporate governance and the success of business operation depends largely on the quality and capacity of managements
Tobin's Q and ROE to measure the performance of the Methodology: In the study of short-term reaction, companies, found there was a significant positive event study is used to ascertain whether there was any correlation between the ownership of company abnormal return associated with equity incentive chairman and general manager and business announcements in Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE)
ROE is the core of the financial system in DuPont indicators, which reflects the ability of its own capital gaining net income
Summary
As the corporate control right and ownership separates, the agency problems between managements and shareholders become an important issue in corporate governance and the success of business operation depends largely on the quality and capacity of managements. The United States began to incent the senior executive by equity since 1950s. In China, “The Management Measures of Listed Companies’ Equity Incentive” introduced in December 31, 2005, the listed companies’ equity incentive began to surge. In September 2006, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC)and the Ministry of Finance jointly issued “The Trial Procedures for State Holding Listed Companies’ (Domestic) Implementation of Equity Incentive”, which marked the ice-breaking trip of the state holding listed companies’ equity incentive came to an end. There were a total of 43 listed companies in Shanghai and Shenzhen in 2006 announced equity incentive draft, including 19 companies officially began the implementation of equity incentive plan in 2006, less than 3% of the total number of listed companies. This study would provide a reference for improving our equity incentive system
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