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7739The effect of equity incentives to ease the agency problem has not yet been unified. There are two sets of diametrically opposed theoretical hypotheses. One supports the optimal contract theory finding that the implementation of equity incentives reduces the cost of equity agency and enhances the value of the company. The other supports the management’s turbulence effect finding that the adoption of equity incentives exacerbates agency conflicts between executives and shareholders, which increases agency costs and reduces corporate values. Based on the behavioral research ideas, the effect of equity incentives depends on the design motivation of them to a large extent. Majority shareholder controlling is a common problem in Chinese Listed Companies. The design of equity incentive contracts is easily influenced by both controlling shareholders and executives. Controlling shareholders may play an active supervisory effect and a negative interest encroachment effect in the process of realizing their control. The two types of the insider power game between controlling shareholders and the management may affect the choice of controlling shareholders’ governance effect. The different governance effect of controlling shareholders may lead to the differences in the motives for their implementation of management equity incentives. Using the case study method, and taking Shanghai Jahwa United Co., Ltd. as the research object, this paper directly observes the dynamic change of the substantive control right of the acquired company between controlling shareholders and executives, and then deeply analyzes the effect of the control right change on the heterogeneity motivation of the equity incentive contract design. We analyze the following questions: Will the governance effect of majority shareholders change with the change of control right reallocation in the process of the power game with executives? Does the change of the motivation of equity incentives following the change of the governance behavior of majority shareholders? How will the management react to this? The answers to these questions not only expand the research connotation of managerial incentive system arrangement, but also enrich the research perspective and content of the governance effect of majority shareholders. They will put optimization suggestions for the rational selection of micro-contract elements of equity incentives and the improvement of other corporate governance mechanisms. Through the theoretical analysis and the case study, we find that the motivation of the equity incentive design is influenced by the power game between executives and majority shareholders. The substantial control power held by executives will cause the welfare design of equity incentives. The power trade-off between private majority shareholders and executives can cause the incentive design of equity incentives. But when private majority shareholders get substantial control power, they will prefer to buy over executives by using equity incentives to do tunneling.
/ Journals / Journal of Finance and Economics
Journal of Finance and Economics
LiuYuanchun, Editor-in-Chief
ZhengChunrong, Vice Executive Editor-in-Chief
YaoLan BaoXiaohua HuangJun, Vice Editor-in-Chief
The Power Game and the Motivation of the Equity Incentive Design in the Change of Control Rights：Based on the Case Study of Shanghai Jahwa
Journal of Finance and Economics Vol. 45, Issue 08, pp. 140 - 152 (2019) DOI:10.16538/j.cnki.jfe.2019.08.010
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Cite this article
Yang Huihui, Pan Fei, Liu Yuying. The Power Game and the Motivation of the Equity Incentive Design in the Change of Control Rights：Based on the Case Study of Shanghai Jahwa[J]. Journal of Finance and Economics, 2019, 45(8): 140-152.
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