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A study on incentive effect of shares of the listing Corporation

Author: ZhangHaiPing
Tutor: LvChangJiang
School: Fudan University
Course: Accounting
Keywords: Equity Incentives Accouting Choice Policy Dividend policy Investment
CLC: F272.92
Type: PhD thesis
Year: 2011
Downloads: 1831
Quote: 2
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Abstract

Manager’s equity incentives have been the research focus of economics, management, finance and accounting since the nineteen century. In the developed markets, equity incentives are used to align managers with the shareholders’interest and to mitigate the agency problem in modern corporations. Equity incentives flourishing since 1980s have played a positive role in value creation and been considered to be the promoter of American economy. On the other hand, a serial of problems arise in US corporate governance in late 1990s. Corporate scandals raise questions about managers’overcompensation, in particular the abuse of equity incentives.On 31st Dec 2005, the CSRC issued "Provisional measures on the equity incentives in the listed company". The primary purpose of equity incentives is to keep managers act in the interest of shareholders in the context of the separation of ownership and control. Do equity incentives play in China as in the mature markets regarding differences in capital market and corporate governance environments? What impact has been on the behaviors of listed companies and their executives, in particular in financial decision and accounting policy choice? Whether equity incentives achieve its purpose in China? What problems arise in practice, and how to correct executives’ misconduct? Whether tax and other external systems have effect on equity incentives’ effectiveness? What policy suggestions can be provided for regulators to improve systems? What useful suggestions can be provided for firms to design the equity incentives plan?We use data from the issuance of "Measures" to Dec 2009 to examine the effectiveness of equity incentives from both perspectives of internal corporate governance and tax based on the principal-agency theory, contact theory and Asymmetric information theory.We first investigate the impact of equity incentives on accounting choice. From the perspective of the assets impairment, we find that part of managers use assets impairment policy to manipulate earnings to increase their gain.Then, we examine the effect of equity incentives on financial decisions. We provide evidence that equity incentives affect the dividend policy due to management self-interest. We also find that equity incentives help to inhabit the inefficient investment and reduce the agency cost.Finally, we investigate the impact of income tax on the effectiveness of equity incentives. We find there is a conflict between the income tax code and the goal of equity incentives. We compare the difference in income tax between in China and in US and provide useful policy suggestions.

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