Motives of Stock Option Incentive Design, Ownership, and Inefficient Investment
Abstract
:1. Introduction
2. Theoretical Analysis and Hypothesis
3. Research Design
3.1. Measurement of Variables
3.1.1. Classification of Stock Option Incentives
3.1.2. Inefficient Investment
3.1.3. Other Variables
3.2. Models
4. Empirical Results and Discussion
4.1. Descriptive Statistics
4.1.1. Classification of Stock Option Incentives
4.1.2. Inefficient Investment
4.1.3. Correlation Analysis
4.2. Stationarity Test
4.3. Motives of Stock Option Incentive Design and Inefficient Investment
4.4. Ownership, Motive of Stock Option Incentive Design, and Inefficient Investment
5. Robustness Test
6. Discussion and Conclusions
Author Contributions
Funding
Acknowledgments
Conflicts of Interest
References
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Industry | 2010 | 2011 | 2012 | 2013 | 2014 |
---|---|---|---|---|---|
Manufacturing | 42 | 57 | 61 | 105 | 91 |
Construction | 4 | 2 | 1 | 4 | 2 |
Real estate | 7 | 4 | 3 | 2 | 1 |
Mining | 0 | 1 | 0 | 0 | 1 |
Electricity, heat production and supply | 0 | 0 | 1 | 0 | 1 |
Information transmission, software and information technology services | 11 | 14 | 11 | 14 | 17 |
Water resources, environment, and public facilities management | 2 | 0 | 0 | 2 | 1 |
Health and social work | 1 | 0 | 0 | 2 | 0 |
Wholesale and retail businesses | 2 | 2 | 2 | 4 | 4 |
Hotels and catering services | 0 | 1 | 0 | 0 | 0 |
Scientific research and technical services | 0 | 1 | 1 | 2 | 3 |
Culture, sports, and entertainment | 0 | 1 | 1 | 1 | 1 |
Leasing and business services | 1 | 0 | 0 | 1 | 4 |
Agriculture, forestry, animal husbandry, and fishery | 0 | 2 | 2 | 1 | 3 |
Transportation, storage, and postal services | 0 | 0 | 1 | 2 | 0 |
Others | 1 | 0 | 1 | 0 | 1 |
Total | 71 | 85 | 85 | 140 | 130 |
QAdj | Industry-adjusted Tobin Q: Tobin Q = (share price × tradable shares + net asset value per share × nontradable shares)/total assets |
Lev | Leverage: total liabilities/total assets |
Cash | Cash: cash and cash equivalents/total assets |
StockR | Stock return |
Age | Number of years company is listed |
Size | Size: ln(total assets) |
Lnv | Inew = Itotal − Imaintenance = cash outflow of constructing fixed assets, intangible assets, and other long-term assets − cash inflow of disposing fixed assets, intangible assets, and other long-term assets + cash outflow of acquiring subsidiary and other operating units − cash inflow of acquiring subsidiary and other operating units − (depreciation of assets + amortization of intangible assets + amortization of long-term prepaid expenses) |
Year | Dummy variable: from 2010–2014 |
Industry | Dummy variable: industries specified by stock exchange |
Option | 1 represents stock option incentive declared; 0 represents no stock option incentive |
ROA | Return on assets: net profit/average assets |
Gshare | Number of shares held by managers |
OW | Ownership: 1 represents state-owned enterprises; 0 represents private-owned enterprises |
OW× Option | Interaction terms of OW and Option and is defined as OW times Option. |
Shrhfd5 | Top five shareholders’ shareholding amount |
Declaration Day | Average AR (T Value) | Declaration Day | Average AR (T Value) |
---|---|---|---|
−10 | −0.0015 (−0.5587) | −4 | −0.0008 (−0.3822) |
−9 | −0.0031 (−1.3178) * | −3 | −0.0014 (−0.6245) |
−8 | −0.0012 (−0.5428) | −2 | −0.0005 (−0.2560) |
−7 | −0.003 (−0.1246) | −1 | 0.0037 (1.5948) ** |
−6 | −0.0015 (−0.6754) | 0 | 0.0121 (4.3290) *** |
−5 | −0.0029 (−1.1641) * | 1 | 0.0030 (1.0974) * |
Welfare-Driven | Incentive-Driven | Total | |||
---|---|---|---|---|---|
Number | Average CAR | Number | Average CAR | ||
State-owned enterprises | 29 | −0.0898 | 62 | 0.0660 | 91 |
Private-owned enterprises | 136 | −0.1587 | 284 | 0.0804 | 420 |
Total | 165 | 346 | 511 |
Overinvestment | Underinvestment | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
N | Mean | Median | Max | Min | N | Mean | Median | Max | Min | Total | ||
State-owned enterprises | Welfare-driven | 18 | 0.0293 | 0.0226 | 0.0971 | 0.0018 | 11 | −0.0345 | −0.0241 | −0.0085 | −0.1405 | 29 |
Incentive-driven | 22 | 0.0719 | 0.0247 | 0.4291 | 0.0080 | 40 | −0.0384 | −0.0262 | −0.0005 | −0.1737 | 62 | |
Private-owned enterprises | Welfare-driven | 73 | 0.0545 | 0.0346 | 0.2438 | 0.0004 | 63 | −0.0400 | −0.0282 | −0.0005 | −0.1573 | 136 |
Incentive-driven | 137 | 0.0598 | 0.0353 | 0.4408 | 0.0004 | 147 | −0.0471 | −0.0359 | −0.0014 | −0.2243 | 284 | |
Total | 250 | 261 | 511 |
Overinvestment | Underinvestment | |||
---|---|---|---|---|
Incentive-Driven | Welfare-Driven | Incentive-Driven | Welfare-Driven | |
Mean | 0.0615 | 0.049 | −0.0453 | −0.0392 |
Standard deviation | 0.0056 | 0.0027 | 0.0017 | 0.0014 |
Sample | 159 | 91 | 187 | 74 |
df | 238 | 167 | ||
P | 0.0701 * | 0.1000 * | ||
T | 1.4796 | 1.6553 |
Residual | Option | OW | OW × Option | QAdj | Leverage | Cash | StockR | Age | Size | ROA | Gshare | Shrhfd5 | |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Residual | 1 | ||||||||||||
Option | −0.229 *** | 1 | |||||||||||
OW | −0.125 *** | 0.031 | 1 | ||||||||||
OW ×Option | 0.139 *** | 0.348 *** | 0.594 *** | 1 | |||||||||
QAdj | 0.145 *** | 0.215 *** | 0.005 | 0.032 | 1 | ||||||||
Leverage | −0.016 | 0.011 | 0.234 *** | 0.140 *** | −0.108 *** | 1 | |||||||
Cash | −0.049 | −0.122 *** | −0.114 *** | −0.110 *** | −0.031 | −0.559 *** | 1 | ||||||
StockR | 0.053 | 0.072 ** | 0.015 | 0.071 ** | 0.302 *** | 0.071 ** | −0.081 ** | 1 | |||||
Age | −0.036 | 0.135 *** | 0.348 *** | 0.242 *** | 0.199 *** | 0.441 *** | −0.4 *** | 0.136 *** | 1 | ||||
Size | 0.178 *** | 0.185 *** | 0.315 *** | 0.239 *** | −0.012 | 0.54 *** | −0.349 *** | 0.018 | 0.518 *** | 1 | |||
ROA | 0.015 | −0.132 *** | −0.063 * | −0.032 | 0.064 * | −0.239 *** | 0.226 *** | 0.037 | −0.251 *** | −0.232 *** | 1 | ||
Gshare | 0.015 | 0.016 | −0.317 *** | −0.187 *** | −0.02 | −0.349 *** | 0.29 *** | 0.003 | −0.52 *** | −0.376 *** | 0.202 *** | 1 | |
Shrhfd5 | −0.047 | −0.023 | −0.019 | −0.012 | −0.044 | −0.007 | 0.024 | −0.11 *** | −0.093 *** | 0.167 *** | −0.032 | 0.002 | 1 |
Residual | Option | OW | OW×Option | QAdj | Leverage | Cash | StockR | Age | Size | ROA | Gshare | Shrhfd5 | |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Residual | 1 | ||||||||||||
Option | 0.163 *** | 1 | |||||||||||
OW | 0.153 *** | 0.036 | 1 | ||||||||||
OW ×Option | 0.165 *** | 0.275 *** | 0.692 *** | 1 | |||||||||
QAdj | −0.126 *** | 0.176 *** | 0.024 | −0.016 | 1 | ||||||||
Leverage | −0.031 | 0.039 | 0.26 *** | 0.184 *** | −0.078 ** | 1 | |||||||
Cash | 0.055 * | −0.197 *** | −0.117 *** | −0.097 *** | −0.058 * | −0.554 *** | 1 | ||||||
StockR | −0.044 | 0.065 ** | 0.058 * | 0.05 | 0.258 *** | 0.113 *** | −0.109 *** | 1 | |||||
Age | −0.005 | 0.147 *** | 0.309 *** | 0.246 *** | 0.287 *** | 0.421 *** | −0.381 *** | 0.156 *** | 1 | ||||
Size | 0.19 *** | 0.278 *** | 0.319 *** | 0.236 *** | −0.009 | 0.465 *** | −0.314 *** | 0.005 | 0.443 | 1 | |||
ROA | 0.045 | −0.258 *** | −0.1 *** | −0.115 *** | −0.135 *** | −0.269 *** | 0.38 *** | −0.004 | −0.323 *** | −0.33 *** | 1 | ||
Gshare | 0.026 | −0.044 | −0.302 *** | −0.22 *** | −0.082 ** | −0.348 *** | 0.279 *** | −0.098 *** | −0.499 *** | −0.366 *** | 0.219 *** | 1 | |
Shrhfd5 | 0.092 *** | 0.062 * | 0.063 * | 0.038 | 0.05 | −0.016 | 0.033 | −0.058* | 0.102 *** | 0.23 *** | −0.095 *** | −0.026 | 1 |
Residual | Option | OW | OW×Option | QAdj | Leverage | Cash | StockR | Age | Size | ROA | Gshare | Shrhfd5 | |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Residual | 1 | ||||||||||||
Option | −0.034 | 1 | |||||||||||
OW | −0.12 ** | −0.006 | 1 | ||||||||||
OW ×Option | −0.086 * | 0.376 *** | 0.624 *** | 1 | |||||||||
QAdj | 0.115 ** | 0.219 *** | −0.071 | −0.048 | 1 | ||||||||
Leverage | 0.094 * | 0.082 | 0.173 *** | 0.166 *** | −0.249 *** | 1 | |||||||
Cash | −0.042 | −0.23 *** | −0.023 | −0.096 * | −0.03 | −0.56 *** | 1 | ||||||
StockR | 0.066 | 0.217 *** | −0.061 | 0.065 | 0.251 *** | 0.156 *** | −0.099 * | 1 | |||||
Age | 0.051 | 0.269 *** | 0.192 *** | 0.215 *** | 0.198 *** | 0.451 *** | −0.347 *** | 0.087 * | 1 | ||||
Size | −0.072 | 0.283 *** | 0.293 *** | 0.341 *** | −0.0008 | 0.534 *** | −0.336 *** | 0.076 | 0.66 *** | 1 | |||
ROA | −0.011 | −0.221 *** | −0.176 *** | −0.199 *** | 0.039 | −0.233 *** | 0.229 *** | 0.009 | −0.181 *** | −0.329 *** | 1 | ||
Gshare | −0.04 | −0.029 | −0.269 *** | −0.169 *** | −0.053 | −0.4 *** | 0.286 *** | −0.01 | −0.46 *** | −0.415 *** | 0.125 ** | 1 | |
Shrhfd5 | −0.043 | 0.116 ** | 0.048 | 0.118 ** | 0.023 | 0.125 ** | −0.051 | 0.01 | 0.067 | 0.292 *** | −0.225 *** | −0.224 *** | 1 |
Residual | Option | OW | OW×Option | QAdj | Leverage | Cash | StockR | Age | Size | ROA | Gshare | Shrhfd5 | |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Residual | 1 | ||||||||||||
Option | 0.014 | 1 | |||||||||||
OW | −0.043 | 0.083 * | 1 | ||||||||||
OW ×Option | 0.05 | 0.235 *** | 0.75 *** | 1 | |||||||||
QAdj | −0.009 | 0.115 ** | 0.052 | 0.06 | 1 | ||||||||
Leverage | −0.174 *** | 0.192 *** | 0.103 ** | 0.127 *** | −0.173 *** | 1 | |||||||
Cash | 0.099 ** | −0.334 *** | −0.087 * | −0.166 *** | −0.101 ** | −0.567 *** | 1 | ||||||
StockR | −0.099 ** | 0.199 *** | −0.011 | 0.042 | 0.295 *** | 0.095** | −0.161 *** | 1 | |||||
Age | 0.136 *** | 0.292 *** | 0.13 *** | 0.157 *** | 0.268 *** | 0.41 *** | −0.405 *** | 0.145 *** | 1 | ||||
Size | −0.076 | 0.35 *** | 0.102 ** | 0.135 *** | 0.022 | 0.526 *** | −0.342 *** | 0.028 | 0.568 *** | 1 | |||
ROA | 0.15 *** | −0.308 *** | −0.13 *** | −0.131 *** | −0.021 | −0.381 *** | 0.344 | 0.038 | −0.202 *** | −0.281 *** | 1 | ||
Gshare | −0.122 ** | −0.11 ** | −0.151 *** | −0.136 *** | −0.195 *** | −0.326 *** | 0.259 *** | −0.138 *** | −0.506 *** | −0.39 *** | 0.093 * | 1 | |
Shrhfd5 | −0.045 | 0.018 | 0.031 | −0.009 | −0.009 | 0.066 | 0.059 | −0.045 | −0.053 | 0.236 *** | −0.186 *** | −0.124 ** | 1 |
Test Method | Residual | QAdj | Leverage | Cash | StockR | Size | ROA | Gshare | Shrhfd5 |
---|---|---|---|---|---|---|---|---|---|
7 | −68.72 *** | −73.01 *** | −90.25 *** | 0.014 *** | −51.91 *** | −3.82 *** | −0.011 *** | −8.37 *** | −0.014 *** |
Fisher-ADF | 59.26 *** | 49.93 *** | 80.45 *** | 103.68 *** | 35.66 *** | 70.28 *** | 94.0937 *** | 19.2878 *** | 140.66 *** |
IPS | −16.51 *** | −12.19 *** | −26.99 *** | −47.86 *** | −20.81 *** | −11.88 *** | −33.08 *** | −0.014 *** | −80.73 *** |
Group | Incentive-Driven | Welfare-Driven | ||
---|---|---|---|---|
Independent Variable | Overinvestment | Underinvestment | Overinvestment | Underinvestment |
Option | −0.0244 *** (0.006) | 0.0259 *** (0.006) | 0.0309 * (0.098) | −0.0052 (0.633) |
QAdj | 0.0131 (0.107) | −0.0056 (0.394) | 0.0306 (0.258) | 0.0154 (0.117) |
Leverage | −0.129 *** (0.001) | −0.1099 * (0.10) | −0.267 (0.219) | −0.2579 *** (0.004) |
Cash | 0.0105 (0.812) | −0.0413 (0.366) | 0.1204 (0.353) | −0.0444 (0.452) |
StockR | −0.0022 (0.623) | 0.0102 ** (0.039) | −0.0269 (0.254) | 0.0099 (0.165) |
Age | 0.099 *** (0.000) | 0.0486 (0.118) | 0.0289 ** (0.037) | 0.0746 *** (0.005) |
Size | 0.0483 ** (0.052) | 0.0852 ** (0.049) | 0.1217 ** (0.021) | 0.0951 ** (0.026) |
ROA | 0.1377 (0.161) | 0.026 (0.857) | 0.0762 (0.823) | −0.3329 (0.178) |
Gshare | −0.1358 *** (0.002) | −0.0683 (0.181) | −0.5355 (0.513) | −0.2069 *** (0.001) |
Shrhfd5 | 0.8986 *** (0.002) | 0.1 (0.346) | 0.1689 (0.756) | 0.0907 (0.437) |
_cons | −1.3644 ** (0.041) | −1.8286 ** (0.05) | −2.3985 ** (0.038) | −1.9872 ** (0.032) |
Year | Control | Control | Control | Control |
Industry | Control | Control | Control | Control |
Sargan | 0.3765 | 0.1901 | 0.3735 | 0.3333 |
Wald | 0.0000 *** | 0.0000 *** | 0.0000 *** | 0.0000 *** |
NIV | 16 | 15 | 15 | 17 |
N | 1730 | 825 |
Group | Incentive-Driven | Welfare-Driven | ||
---|---|---|---|---|
Independent Variable | Overinvestment | Underinvestment | Overinvestment | Underinvestment |
Option | −0.02 ** (0.017) | 0.0273 *** (0.004) | 0.0345 * (0.058) | −0.0134 (0.472) |
OW | −1.2374 ** (0.047) | 0.0134 (0.3) | −0.128 (0.224) | 0.0488 (0.282) |
OW× Option | −0.0222 ** (0.033) | 0.0131 * (0.097) | 0.0363 (0.109) | −0.0494 (0.328) |
QAdj | 0.0149 * (0.091) | −0.007 (0.277) | 0.0148 (0.478) | −0.019 (0.294) |
Leverage | −0.1478 *** (0.000) | −0.0562 (0.339) | −0.4122 (0.154) | −0.1875 (0.173) |
Cash | 0.0068 (0.868) | −0.0136 (0.758) | 0.2134 (0.152) | −0.0988 (0.338) |
StockR | −0.0015 (0.71) | 0.0121 *** (0.008) | −0.0411 (0.179) | 0.008 (0.55) |
Age | 0.1 *** (0.000) | 0.0055 (0.481) | −0.002 (0.913) | 0.1237 *** (0.000) |
Size | 0.0432 ** (0.041) | 0.0348 (0.182) | −0.0192 (0.824) | −0.0175 (0.769) |
ROA | 0.1103 (0.232) | 0.1073 (0.429) | −0.0921 (0.735) | −0.1678 (0.542) |
Gshare | −0.1327 *** (0.002) | −0.0567 (0.164) | −0.6846 (0.501) | −0.1205 (0.211) |
Shrhfd5 | 0.8635 *** (0.002) | 0.1 (0.34) | −0.0789 (0.816) | −0.3824 (0.131) |
_cons | −1.2594 ** (0.019) | −0.8902 (0.242) | 0.6992 (0.707) | 1.2861 (0.361) |
Year | Control | Control | Control | Control |
Industry | Control | Control | Control | Control |
Sargan | 0.9382 | 0.2061 | 0.215 | 0.1875 |
Wald | 0.0000 *** | 0.0000 *** | 0.0000 *** | 0.0000 *** |
NIV | 21 | 20 | 20 | 22 |
N | 1730 | 825 |
CAR Method | Vesting Conditions Method | Similarity | |||||||
---|---|---|---|---|---|---|---|---|---|
Incentive-Driven | Welfare-Driven | Total | Incentive-Driven | Welfare-Driven | Total | Incentive-Driven | Welfare-Driven | Similarity | |
State-owned enterprises | 62 | 29 | 91 | 62 | 29 | 91 | 62 | 29 | 100% |
Private-owned enterprises | 284 | 136 | 420 | 250 | 170 | 420 | 226 | 113 | 81.33% |
Group | Incentive-Driven | Welfare-Driven | ||
---|---|---|---|---|
Independent Variable | Overinvestment | Underinvestment | Overinvestment | Underinvestment |
Option | −0.0302 ** (0.046) | 0.017 * (0.059) | 0.0039 (0.67) | −0.0054 (0.723) |
QAdj | 0.0017 (0.911) | −0.0101 (0.112) | 0.0146 (0.154) | −0.0121 (0.405) |
Leverage | −0.0548 (0.586) | −0.0553 (0.265) | −0.2033 *** (0.000) | −0.0796 (0.123) |
Cash | −0.0432 (0.606) | −0.0932 *** (0.003) | 0.0586 (0.301) | −0.0884 (0.103) |
StockR | −0.0067 (0.374) | 0.0142 *** (0.002) | −0.0167 ** (0.022) | 0.0145 (0.442) |
Age | 0.0816 * (0.063) | 0.0179 (0.133) | 0.0004 (0.931) | 0.0068 ** (0.048) |
Size | 0.0204 (0.328) | 0.0441 * (0.1) | 0.0231 (0.379) | 0.002 (0.898) |
ROA | 0.2351 (0.193) | −0.1529 (0.155) | 0.1838 (0.363) | 0.1112 (0.588) |
Gshare | 0.2128 (0.187) | 0.0367 (0.32) | −0.098 (0.223) | −0.0816 *** (0.006) |
Shrhfd5 | 0.4656 * (0.057) | 0.13 (0.142) | 0.1811 (0.121) | 0.0709 (0.362) |
_cons | −1.1755 ** (0.046) | −0.8364 (0.111) | −0.4222 (0.444) | 0.1092 (0.713) |
Year | Control | Control | Control | Control |
Industry | Control | Control | Control | Control |
Sargan | 0.4153 | 0.168 | 0.631 | 0.2826 |
Wald | 0.0000 *** | 0.0000 *** | 0.0000 *** | 0.0000 *** |
NIV | 20 | 20 | 19 | 46 |
N | 1560 | 995 |
Group | Incentive-Driven | Welfare-Driven | ||
---|---|---|---|---|
Independent Variable | Overinvestment | Underinvestment | Overinvestment | Underinvestment |
Option | −0.0307 ** (0.029) | 0.0172 * (0.074) | 0.0014 (0.806) | −0.0049 (0.755) |
OW | −0.587 ** (0.014) | 0.0417 * (0.073) | −0.008 (0.577) | 0.0444 (0.503) |
OW× Option | −0.0191 * (0.095) | 0.0139* (0.098) | 0.0128 (0.552) | −0.1461 ** (0.046) |
QAdj | 0.0062 (0.646) | −0.0059 (0.359) | 0.0135 (0.207) | −0.0125 (0.442) |
Leverage | −0.0855 (0.302) | −0.0757 (0.214) | −0.1972 *** (0.000) | −0.0873 * (0.074) |
Cash | −0.0076 (0.923) | −0.0311 (0.406) | 0.0493 (0.385) | −0.011 ** (0.042) |
StockR | −0.003 (0.68) | 0.0156 *** (0.005) | −0.0149 ** (0.045) | −0.001 (0.957) |
Age | 0.0056 (0.478) | −0.0049 (0.182) | 0.0005 (0.916) | 0.0071 ** (0.029) |
Size | 0.0405 * (0.093) | −0.0236 (0.301) | 0.0277 (0.236) | −0.003 (0.832) |
ROA | 0.2108 (0.202) | −0.0132 (0.911) | 0.1968 (0.33) | 0.0882 (0.726) |
Gshare | −0.0832 (0.5) | −0.0638 (0.114) | −0.0824 (0.273) | −0.0759 *** (0.009) |
Shrhfd5 | 0.1131 (0.67) | 0.0928 (0.34) | 0.1727 (0.134) | 0.0658 (0. 377) |
_cons | −0.6716 (0.158) | −0.5241 (0.291) | −0.5128 (0.292) | 0.1639 (0.589) |
Year | Control | Control | Control | Control |
Industry | Control | Control | Control | Control |
Sargan | 0.1768 | 0.1412 | 0.5945 | 0.1711 |
Wald | 0.0000 *** | 0.0000 *** | 0.0000 *** | 0.0000 *** |
NIV | 20 | 21 | 21 | 46 |
N | 1560 | 995 |
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Share and Cite
Shan, W.; An, R. Motives of Stock Option Incentive Design, Ownership, and Inefficient Investment. Sustainability 2018, 10, 3484. https://doi.org/10.3390/su10103484
Shan W, An R. Motives of Stock Option Incentive Design, Ownership, and Inefficient Investment. Sustainability. 2018; 10(10):3484. https://doi.org/10.3390/su10103484
Chicago/Turabian StyleShan, Wei, and Ran An. 2018. "Motives of Stock Option Incentive Design, Ownership, and Inefficient Investment" Sustainability 10, no. 10: 3484. https://doi.org/10.3390/su10103484