Ownership, volatility, and equity incentives: Theory and evidence from listed companies in China

Zonglai Kou, Yue Tang, Hong Wu and Min Zhou

Economic Modelling, 2023, vol. 128, issue C

Abstract: Firms widely use equity incentive plans to tackle agency problems, yet how they are adopted under wage rigidity remains unclear. We develop a simple principal–agent model with wage rigidity to study how performance–incentive sensitivity and wage rigidity affect the adoption of equity incentive plans. We show that a firm is more likely to adopt the equity incentive plan when a firm's performance is less sensitive to the managerial effort, when wages are less rigid, and when the certainty equivalent of outside options is higher. We empirically test these predictions using a sample of listed companies in China. Consistent with our predictions, we find that non-SOEs, firms in more volatile industries, and firms with younger managers are more likely to adopt equity incentive plans.

Keywords: Equity incentives; Ownership; Volatility; Managerial rent-extraction (search for similar items in EconPapers)
JEL-codes: C73 G32 G34 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999323002821
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:128:y:2023:i:c:s0264999323002821

DOI: 10.1016/j.econmod.2023.106470

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().