The impact of equity incentive executive compensation on corporate performance

• Main Author: RUAN, Bing
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2023
• Subjects: equity incentive; Financial performance; Excitation intensity; Corporate Finance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/etd_coll/543; https://ink.library.smu.edu.sg/context/etd_coll/article/1541/viewcontent/GPBF_AY2023_PhD_Ruan_Bing.pdf
• Institution: Singapore Management University

The management rights and ownership of modern enterprises are often separated. Enterprise owners, i.e. shareholders, pursue the maximization of enterprise profits, while enterprise managers pursue the maximization of their own interests. This leads to conflicts between the two parties in the process of pursuing the maximization of their respective interests. To address the inconsistency of interests in principal-agent relationships, effective corporate governance mechanisms are needed. The equity incentive system is one of the important means for modern enterprises to implement effective human capital management. Its purpose is to bind the personal interests of management with the interests of the enterprise, and motivate managers to create greater value for the company. With the transformation and upgrading of China's economy, the pressure of business competition among enterprises has increased. More and more Chinese enterprises are implementing equity incentive systems to better stimulate the motivation of managers and achieve the goal of good business development. Listed companies, due to their requirements for technology and talent aggregation, also favor the use of equity incentives to attract and gather more and better core employees, stimulate employees' scientific research and innovation capabilities, and promote faster and better development of the company This article is based on the principal-agent theory, incentive mechanisms, and corporate financial performance evaluation. Literature review is conducted using empirical research methods such as case analysis and regression analysis. Firstly, H Company is selected as the case object to introduce the two equity incentive policies and methods adopted by H Company in its business development, compare and analyze the financial performance of the enterprise during the same period, and evaluate the effects caused by different equity incentives. In order to verify the results of the case analysis, this article further uses 1049 Chinese listed manufacturing enterprises from 2013 to 2021 as samples for empirical research, and tests the research hypotheses in sequence. The final empirical results indicate that, firstly, the implementation of equity incentive plans by listed manufacturing companies does significantly improve company performance, and this effect varies greatly for enterprises with different property rights and industries. Non state-owned enterprises have more market-oriented characteristics and a higher frequency of talent turnover. Therefore, compared to state-owned enterprises, the implementation of equity incentive plans has a more significant positive effect on the performance improvement of non-state-owned enterprise companies; High tech manufacturing enterprises have a stronger thirst for talent and require high-quality talents to ensure product and technological innovation. Therefore, implementing equity incentives has a more significant promoting effect on company performance than traditional manufacturing industries. Secondly, the incentive methods, incentive numbers, and exercise prices in the equity incentive elements can also significantly and positively affect the performance of listed manufacturing companies. Empirical evidence shows that an increase in incentive intensity will actually reduce company performance, while the correlation between validity period and company performance is not significant. The research results of this paper aim to provide reference for similar enterprises to implement equity incentives.