Evaluating the effects of equity incentives using PSM: Evidence from China |
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Authors: | Yujun Lian Zhi Su Yuedong Gu |
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Institution: | 1. Lingnan College, Sun Yat-sen University, Guangzhou 510275, China; 2. School of Statistics, Central University of Finance and Economics, Beijing 100081, China; 3. School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710063, China |
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Abstract: | This paper investigates the effects of equity incentives on firm performance in Chinese listed firms. We address the sample
selection problem by employing the propensity score matching methodology. Results show that, (1) On the whole, performance
is positively related to equity incentives even after controlling for sample selection bias; (2) The final control rights
have an important impact on the effects of equity incentives. The execution of equity incentives in privately owned firms
can significantly decrease the agency costs between shareholders and managers, but such effects cannot be observed in state-owned
firms; (3) Effects of equity incentives depend on the incentive type, that is, comparing to stock-based incentives, option-based
incentives can reduce the agency costs significantly, thus are more effective; (4) Ownership structure also has important
impacts on the effects of equity incentives. The agency costs decrease in firms with more decentralized ownership after introducing
equity incentive, while in concentrated firms the effect is negligible. |
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Keywords: | equity incentives firm performance propensity score matching bootstrap |
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