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Short-term Wealth Effect of listed companies equity incentive

Author: CuiMingHuiˇˇZhangBing From: www.yourpaper.net Posted: 2009-04-02 21:45:26 Read:
Abstract: January 2006 to January 2008, China's total of more than 60 listed companies to take equity incentive program. The event study method to the case of these listed companies equity incentive empirical study found that within the selected time window, the total sample equity incentive activities will cause significant changes in shareholders' short-term wealth effect. The classified study found that incentives in the form of stock options due to the wealth effect is greater than in the form of restricted stock, but a high proportion of equity incentive does not necessarily produce a higher wealth effect. In addition, one of the factors of growth is investor attention. Growth of the company's share price rise than low growth companies.

Keywords: equity incentive; wealth effect; event study methodology
Abstract: In this paper, we use event study method to reaserch 55 listed companies that carried out equity incentive plan from January 2006 to January 2008 on the data of Chinese listed companies. Empirical researches indicate that equity incentive can increase the short-term wealth effect of shareholders. We also find that stock option can increase the wealth effect more significantly than restricted stock. But the proportion of incentive stock accounting for the total entity has little effect on shareholders wealth. In addition, enterprise's growth is another factor that investors pay attention to. The result show that stock price in high growth companies increase more significantly than relative low growth companies.
Key words: entity incentive; wealth effect; event study; stock option; restricted stock


In January 2006, the Commission listed companies equity incentive management approach "promulgation and implementation of the next SASAC issued the" State Holding Listed Companies implementation of equity incentive Trial Measures ". Prior to that, although there is the case of many listed companies equity incentive, but the introduction of these two policies, regulations determine the equity incentive mechanism, a clear implementation of equity incentive conditions, sources of stock incentive target for listed companies in the implementation of equity incentive policy support. In this context, the listed company equity incentive the gate smoothly, equity incentives are springing continue to emerge, and the highlights of listed companies and investors concerned about the main theme in 2007.
Equity incentive listed companies to the stock of the Company as the subject of its directors, supervisors, senior management and other employees of long-term incentives, including stock options, stock appreciation rights, employee stock ownership plan, restricted stock incentive plans form. Equity incentive system in the United States in the 1950s, seventies and eighties began to be prevalent in the West, have developed rapidly in the 1990s. The U.S. experience has shown that flourished in the 1980s equity incentive system played an active role in the promotion of value creation, promote economic growth. Equity incentive stock option system is considered to be the new economy in the United States pusher. To the end of 2000, more than half of the listed companies using the equity incentive plan. After nearly half a century of market tests, the equity incentive was a great success in the West, created a the NASDAQ myth of the United States, known as the incentive "golden handcuffs".
Give business owners a certain economic rights, equity incentive prompted managers to the identity of the shareholders to participate in corporate decision-making, profit-sharing, risk, and establish effective internal incentive and restraint mechanisms, mobilize the enthusiasm of the management diligence the long-term development of the company's services. Implementation of equity incentive upward trend in short-term stock price, although in theory the people think so, but how equity incentive policies have little impact on shareholder wealth, different incentives designed to affect shareholder wealth, what is the difference, this is a worthy of study and reflection.

Second, the. Literature review

Since Berle and Means (1932) famous ownership and control of phase separation proposition, "the separation of ownership and has become an important feature of the modern enterprise, this separation between the shareholder and operator formed a principal - agent relationship. Jensen (1983) further suggested that corporate governance is the separation of ownership and management agent, the core issue is how to reduce agency costs. Information asymmetry and bounded rationality and opportunism behavior tendency, resulting in the generation of the modern enterprise internal control or agent issues. In order to effectively discipline and control operators, their behavior to the greatest extent consistent with the interests of shareholders, resulting equity incentive in the form of incentives.
Abroad earlier studies found that the equity incentive plan increase in shareholder wealth. Brickley, Bhagat and Lease (1985) found that the introduction of the incentive plan will have a positive market reaction, to promote an increase in shareholder value. Morgan and Poulsen (2001) S & P 500 company equity incentive plan for the 1992-1995 analysis, found in [-3, 3] event window, the average cumulative excess return is significantly positive, proof of equity incentive plan can really promote the increase of shareholder value, especially when the program focuses on senior managers, the increase in shareholder value. However, Martin, Thomas (2005) has come to the opposite conclusion. They analyzed the United States for the years 1998-1999 the company's equity incentive plan that [-3, 3] window, equity incentive negative abnormal returns. The domestic equity incentive discuss equity incentive impact on the long-term performance of the company. Zhou Jianbo, SunJusheng (2003) investigated the operators Equity Incentives and results of operations of the Company to improve the relationship between the obtained increase in the number of shares held by the improvement of the results of operations of the companies with high growth and management equity incentive significantly positively related to conclusions . Weygand (2000), shareholding number of senior management and operating performance of listed companies not only does not exist the so-called "range effect", and the senior management of the holding ratio, the more relevant with the operating results of listed companies Poor. Shares held by senior management did not achieve the desired incentive effect, it is merely a system of welfare arrangements. In this paper, through short-term wealth effect caused by the shareholders of the listed company equity incentive study, research equity incentive.

Third, the sample data and research methodology

In this paper, the equity incentive activities from January 2006 to January 2008 listing of all of the company's equity incentive activities, excluding incomplete data, not the first time equity incentive and events occurred during the sample of other significant events affecting the stock price, the total sample to 55. Transaction data from the database.
This article intends to adopt a more mature event study. Equity incentive activities in the event study to examine the short-term investor wealth effect is by calculating the equity incentive activities before and after the announcement of a certain period of time (the event window), samples of actual revenue and stock of the anticipated revenue between differences, to reflect the equity incentive activities in the short term investor wealth. In this paper, the market model. The usual calculations indicators abnormal returns (abnormal return, AR) and cumulative abnormal returns (ACCUMULATED abnormal return, CAR). Where AR = R-E (R). Divided into Shanghai Stock Exchange and Shenzhen Stock Exchange, listed on the stock based on the sample locations were taken to calculate the expected rate of return on the Shanghai Composite Index and Shenzhen Composite Index. Event announcement date set to 0, the definition of the event window [-15, 15], the incident was 120 days prior to the first 16 days defined for the forecast window.
Using event study method inspection equity incentive impact on the Company's shareholders short-term wealth effect the idea is that: If the company's share price after the event before showing a change, and this change is very significant with, that T-statistic significant forward to is not 0, then you can think equity incentives have a significant impact on the company's share price.

Fourth, the empirical results

(A) equity incentive event total sample
As can be seen from the figure, two days before the event, the total sample AR and CAR increased significantly, may exist inside information, the company's message may be leaked. The event date AR, there is a clear jump event in the future share price immediately dropped, AR value is restored to its original level. Accompanied by changes in the AR, CAR value in -2 days to soar in the event date is 0.432, although after growth, but do not increase. T-test found on the CAR = 0 t = 7.896 probability of 0.0000, CAR significantly non-zero. Total sample in the event prior to the date of a significant upward trend, consistent with findings Morgan, Poulsen et al.
(B) a different type of stimulus sub-sample
The type of incentive stock options, the Securities and Futures Commission, the SASAC issued by the listed company equity incentive management regulations, incentive stock options, including stock options, restricted stock, as well as legal, administrative regulations otherwise allowed. Stock options granted by listed companies the incentive objects within a certain time in the future, to a pre-determined purchase price of the stock of a certain number of powers. Incentive target for revenue primarily from the company's share price and the exercise price of the right line on the difference between the exercise price is relatively fixed, so the incentive target income mainly depends on the company's share price. Has risen more, the greater the incentive target of the income. The restricted stock is the company a certain number of shares granted to employees free of charge, but subject to certain restrictions in the purchase of the stock ownership. These two at home and abroad in the form of equity incentive effects caused by mixed views. Disclosure of domestic listed companies incentives analysis, we found that the form of incentive is mostly concentrated in the two kinds of stock options and restricted stock. In addition, only a select combination in the form of stock options and restricted stock, as well as a choice in the form of stock options and stock appreciation rights, these two samples removed. Let us study the shareholders' wealth effect caused by the difference in the two main forms of equity incentive.
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