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Impact of Equity Incentive on Dividend Distribution in China’s Listed Companies

Author: WangYunYun
Tutor: DengMingRan
School: Wuhan University of Technology
Course: Business Administration
Keywords: Equity Incentive Dividend Distribution Listed Companies Executives
CLC: F275
Type: Master's thesis
Year: 2013
Downloads: 55
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Abstract


Equity Incentive has been widely used in developed countries as an effective long-term stimulating mechanism. Although it started relatively late in China, it has been developing fast since the promulgation of relevant laws and regulations. Numerous listed companies attempt to establish the interest-sharing and constraint mechanism between shareholders and managers through plans in equity incentive, promoting stable development in the long run. However, according to empirical results of many domestic scholars, equity incentive did not achieve to the desired effect in China’s listed companies. The reasons could be ascribed to the late development, which lead to the lack of experience and contract defects, and unsatisfactory conditions of the equity incentive implementation. These provide space for executives to manipulate and adjust for the sake of self-interest.In practice of China, the listed companies which have announced their incentive plans (referred to incentive companies), tend to distribute high cash dividends or combination dividends shortly after the announcement. A large part of the equity incentive beneficiaries are executives, and most executives are not only responsible for the corporate operation, but also the board members, who have the decision-making power in dividend distribution policies; moreover, the executives who are not board members also have the ability to affect the design of equity incentive contracts, dividend policies, which provides more opportunities for them to seek rent. Therefore, it is reasonable to speculate that the changes in dividend distribution of incentive companies are probably influenced by the granted executives. This thesis adopts qualitative and quantitative analysis, using the literature review method, regression, contrastive analysis and other research methods, and explores the behaviors and choices of the executives when they are involved in the formulation of the dividend distribution policies under the circumstances of being granted options.Firstly, it presents the implementation of equity incentive and dividend distribution, and analyzes the specific changes of dividends after incentive, based on the data of the companies that declared A-share incentive plans from2006~2012in Shanghai and Shenzhen Stock Market. Secondly, it establishes a simultaneous equation model, relying on the related theories of equity incentive and dividend distribution, the influence factors and inherent mechanism, to study whether the executives who are both the equity incentive targets and participants in dividend distribution decisions would prompt to develop the policies that maximum their own interest for more non-efforts equity incentive benefits, weakening the effect of equity incentive and even damaging the interests of shareholders. Finally, it proposes countermeasures to reduce the self-interest oriented behaviors of executives.At present, China has less research on the impact of equity incentive on corporate behavior, especially on dividend distribution. This thesis has made a useful supplement in the theoretical basis; meanwhile it provides some references and decision supports for China’s authorities and companies to achieve further development on equity incentive.

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CLC: > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management
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