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The Dark Side of the Chinese Stock Market: Managerial Rent-Seeking through Equity Incentives

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  • Li-jun Zhao
  • Zheng-wei Wang

Abstract

Despite widespread attention, most previous papers have failed to test the real effects of equity-based compensation because of endogeneity. In this study, we collected data from the Chinese companies listed in the Shanghai and Shenzhen stock markets from 2006 to 2012. After controlling the problem of endogeneity and selection bias, the results show that equity incentives have no significant influence on improving firm performance. Moreover, these companies were more likely to propose an equity incentive plan when the executives expected that it would be easy to satisfy the vesting conditions. Based on these facts, equity incentives have become managerial rent-seeking for the executives in the Chinese stock market. This is certainly not fair for the investors in the stock market. This paper uses one new method to study the real effects of equity incentives and contributes to the research on the Chinese stock markets and their compensation structures.

Suggested Citation

  • Li-jun Zhao & Zheng-wei Wang, 2016. "The Dark Side of the Chinese Stock Market: Managerial Rent-Seeking through Equity Incentives," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(4), pages 156-165, April.
    • Handle: RePEc:ibn:ijefaa:v:8:y:2016:i:4:p:156-165
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    References listed on IDEAS

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    More about this item

    Keywords

    analysts¡¯ predictions; equity incentives; firm performance; managerial rent-seeking; two-stage ¡°treatment effect¡± model;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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