Equity Incentive and Firm Value: Evidence from the Chinese Stock Market based on Panel Regression Model

Abstract

Nowadays, more and more firms use equity incentives to encourage executives to improve firm value. In order to have a better understanding of it, this article analyzes the relationship between the equity incentives and the firm value. Based on agency theory and management incentive plan, we explore the influence of corporate equity incentives on corporate value. We download data of A-share listed companies in China’s two big Exchanges. In our process, panel regression model is set to prove our point. Our financial data come from CSMAR database and relevant data from the Wind financial terminal. After using Stata and calculating, we get 15,556 firm -year observation value, and our results show that in those companies, the implementation of corporate equity incentives will significantly promote corporate value improvement, and this relationship is still significantly established after experiencing A series of robustness. Further, there also provides us data to analyze four different types of companies. The result shows that the positive effect of equity incentives is greater in state-owned enterprises, enterprises audited by the Big Four auditors, enterprises with a high proportion of shares held by institutional investors, and companies with high growth. This paper provides support for the positive effect of the current equity incentive. At the same time, our analysis of different types of companies provides a basis for future research on a particular type.