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Study on the Relationship between Equity Incentive and Internal Long-term Investment Decision

Author: LiBaoXia
Tutor: LiuXiuLi
School: Ocean University of China
Course: Accounting
Keywords: Equity incentive Investment decisions Insufficient investment Over-investment
CLC: F272;F224
Type: Master's thesis
Year: 2010
Downloads: 221
Quote: 0
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Abstract

Currently, equity incentive system has been used in the practice of States. Implementation of equity incentive effect how? This problem has been the general concern of the theorists and practitioners. Research on this issue has been a lot, but most of the literature focused on the research and equity incentive and corporate performance between the relationship. Corporate performance indicators as a measure equity incentive implementation effect does have a strong persuasive. But the inadequacies of the two main performance indicators. First, the short-term corporate performance indicators and lag. Most research enterprise net profit, return on assets, return on total assets, total profit as the business performance of alternative variable, with some short-term and lag indicators. Such indicators represent companies over a period of time the operating results, there is a certain gap between the long-term value of the enterprise and development goals reflect business information, and can not fully demonstrates the company's future operating conditions and business prospects. Second, corporate performance indicators indirection. We have introduced incentive stock options to effectively constrain the behavior of the senior management, so that actions are consistent with the long-term interests of the enterprise, the introduction of equity incentive purpose essentially is to standardize the senior management decision-making, its decision-making is conducive to the development of enterprises. Measure equity incentive implementation effect is good or bad should directly reflect management's behavior indicators. Corporate performance indicators with a certain degree of uncertainty, corporate performance is not only affected by the decision affect also influenced by other factors (such as the economic environment, the product life cycle, and other factors). Sometimes managers to make a lot of effort, but not necessarily to get the ideal corporate performance. Therefore, the corporate performance as indirect indicators to measure equity incentive implementation effect. Direct equity incentive systems to regulate the behavior of senior management, the measure of corporate equity incentive implementation of the most effective indicators should be directly related to the behavior with the senior management. Enterprise investment decision-making behavior is directly related to the future value and long-term development of the enterprise, a direct reflection of the behavior of senior management. Corporate investment decisions can overcome the inadequacies of both corporate performance indicators as a measure of equity incentive implementation effect indicators. Therefore, this paper intends to examine the relationship between the equity incentive and investment decisions, and to measure the effect of the implementation of equity incentive. The study on the relationship between the equity incentive and investment decisions can be divided into empirical specification two categories. The specification class research literature regarded equity incentive as an incentive system that inhibit investment in corporate management inefficiencies. Empirical research literature abroad the more domestic literature is relatively small. Summarize the assumptions and conclusions of empirical research can be seen, the assumptions put forward by the different literature is different, and some believe that equity incentives and investment decisions (1) is a positive correlation between some considered to be a negative correlation. Moreover, the existing literature I found only hypothesized, and no specific analysis of equity incentive impact of the two investment inefficiencies. So, what is the relationship between the equity incentive and investment decisions? To answer this question requires a concrete analysis of the two investment inefficiencies, as well as China's actual situation. The subject by the analysis of both underinvestment and overinvestment investment inefficiencies ②, deep-seated reasons, combined with the principal-agent theory to analyze the relationship between the equity incentive and investment decisions, thus postulated for the specific situation of China's state-owned listed companies, Using the data collected to verify the underlying assumptions. Based on the 2006 - 2008 Annual Report of China's state-controlled listed companies data sample, state-owned listed company equity incentive and investment decisions of the relationship between research results show that the investment decisions of China's state-controlled listed companies have strong cash flow sensitive sex; China's state-controlled listed companies exist overinvestment; However, due to the unique background of China's state-controlled listed companies as well as equity incentive system mature enough equity incentive does not play an ideal role in China's state-controlled listed companies.

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