An-Empirical-Study-on-the-Effects-of-Equity-Incent

TechnologyandInvestment,2014,5,26-31PublishedOnlineFebruary2014()—AnEmpiricalAnalysisBasedontheViewofEarningsManagementLixinXu,WenqinCuiSchoolofManagement,UniversityofScienceandTechnologyofChina,Hefei,ChinaEmail:[e-mail]29,2013;revisedNovember29,2013;acceptedDecember6,2013Copyright©2014LixinXu,WenqinCui.ThisisanopenaccessarticledistributedundertheCreativeCommonsAttributionLicense,whichpermitsunrestricteduse,distribution,andreproductioninanymedium,providedtheoriginalworkisproperlycited.Inaccor-danceoftheCreativeCommonsAttributionLicenseallCopyrights©2014arereservedforSCIRPandtheowneroftheintellectualpropertyLixinXu,WenqinCui.AllCopyright©2014areguardedbylawandbySCIRPasaguardian.ABSTRACTCurrently,mostresearchesarefocusingonShanghai&Shenzhenexchange,andfewresearcheshavebeendoneontheSMEboard.Besides,whilestudyingtheeffectofequityincentive,mostoftheresearchershaveignoredtheearningsmanagementtriggeredbystockownershipincentive.ThispapertakestheSMEboardcompanieswhichhaveimplementedstockownershipincentiveastheresearchobject.Wehaveusedearningsmanagementtomodifythecompanyperformanceandcarriedoutanempiricalresearchtostudytheeffectofstockownershipincentive.Ourresultshowsthatwithoutearningsmanagementtomodifythecompanyperformance,stockown-ershipincentiveispositivelyrelatedtocompanyperformance.Takingtheearningsmanagementintoaccount,thepositivecorrelationrelationshipbetweenstockownershipincentiveandcompanyperformancewillbewea-kened,andstockownershipincentivewillstimulateearningsmanagement.KEYWORDSEquityIncentive;SMEBoard;CompanyPerformance;EarningsManagement1.IntroductionIn2005,theMeasuresfortheAdministrationofListedCompaniesEquityIncentive(Trial)issuedbyChinaSe-curitiesRegulatoryCommission,markedthebeginningofChina’sequityincentive.Equityincentivemechanismisanimportantpartofthecorporategovernanceme-chanism.Theoretically,it’salong-termandencouragingsystem,andisabletorestrictthebehaviorofexecutivesthroughinstitutionalarrangementssoastoreduceagencycostandimproveoperationefficiency.However,inreal-ity,whethertheequityincentivecancoordinatethecon-flictsofinterestsbetweenshareholdersandmanagerseffectivelyandimprovecompanyperformanceisstilladisputeintheacademiccircles.Americanscholars,Jensen&Meckling(1976)[1]pro-posedtosolvetheprincipal-agentproblemsthrougheq-uityincentivefirstandtheyprovedthatmanagerscannotrealizethemaximalbenefitofstockholders,becausetheyhavethemotivationtopursueexpensein-office.Listedcompaniesimplementingequityincentiveplanscanpro-duceAlignmenteffect,whichbringstheinterestaccor-dancebetweentheexecutiveandexternalshareholderstoeffectivelysolvetheprincipal-agentproblems;Mehran(1995)[2]hadfoundthatCEOandmanagerialowner-shiphaveapositiveeffectoncompanyperformance.Throughanempiricalstudyontherandomlyselectedsampledataof153companies,thereisapositivecorrela-tionbetweenmanagementshareholdingratioandcom-panyperformance.Somescholarse.g.Himmelberg,Hub-bard&Palia(1999)[3]arguedthattheequityincentivecannoteffectivelyimprovetheperformanceofthecom-pany.Bytheempiricalstudybasedonapaneldatasam-ple,theyfoundthatthecorrelationbetweenmanagerialownershipandcorporateperformancedoesnotexistorisweak.TheimplementationofequityincentivemechanismofChina’slistedcompaniesislateandthedevelopmenttimeisveryshort.StudiesinthisissuearenotsufficientL.X.XU,W.Q.CUIOPENACCESSTI27inChina,butarethesamewiththeforeignstudies,therearetwodiametricallyoppositeconclusionstoo.WeiGang(2000)[4]foundthatManagerialownershipandcompa-nyperformancearenotremarkablerelatedornotrelatedtoeachother;LiZengquan(2000)[5]provedthatChina’slistedCorporationmanagershareholdingishelpfultoimprovecompanyperformance,butsincemostofthemanagersshareholdingratioisverylow,itcan’tperformitsfunctions;throughempiricalstudies,GuBingandZhouLiye(2007)[6]suggestedthatatpresent,long-termeffectofexecutiveequityincentiveofChina’slistedcorporationsisnotobvious;theempiricalresearchofLiuGuoliangandWangJiasheng(2000)[7]showedthatthemanagementequityincentiveandfirmperformancehaveapositivecorrelationinstatistics.Throughoutthepreviousresearches,itisnothardtofindthat,atpresent,mostoftheresearchesarefocusedonShanghai&Shenzhenexchange,andfewresearcheshavebeendoneontheSMEboard.WithmoresmallandmediumsizecompanieslistedontheSMEboardandtheimprovementofequityincentivemechanism,moreandmorelistedSMEsbegantoimplementequityincentiveandbecamethemostactivepart.MostofthecompaniesoflistedSMEsareprivateenterprises,whicharediffer-entfromtheMain-BoardMarketmainlycomposedbystate-ownedenterprises.Asmanagersinthesecompaniesareselectedthroughthesystemofemploymentundercontract,theirappointmentisusuallycloselyrelatedtotheirjobperformance.Theoretically,theeffectivenessofequityincentiveinlistedSMEsisdifferentfromthoseofmainboardcompanies.ThelistedSMEsimplementeq-uityincentivecanpromotemanagerstoworkharderandachievetheinterestsoftheclien