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Motives of Stock Option Incentive Design, Ownership, and Inefficient Investment

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  • Wei Shan

    () (School of Economics and Management, Beihang University, Beijing 100191, China
    Key Laboratory of Complex System Analysis and Management Decision, Ministry of Education, Beijing 100191, China)

  • Ran An

    () (Library, Renmin University of China, Beijing 100872, China)

Abstract

This paper analyzes the effects of stock option incentives on inefficient investment. Specifically, based on the motive of design, we divide stock option incentives into incentive-driven and welfare-driven incentives. Our research is based on the panel data of 511 Chinese listed companies that declared stock option incentives from 2010 to 2014, including both incentive-driven and welfare-driven incentives. Our research shows that different types of stock option incentives have different effects on inefficient investment. Generally, incentive-driven stock option incentives reduce inefficient investment, whereas welfare-driven stock option incentives do not reduce inefficient investment, but increase it. However, there is a weakening effect in state-owned enterprises due to two opposite factors, numerous restrictions and more self-interested managers. Additionally, the paper provides implications that some stock options are manipulated by managers in the designing stage in order to pursue self-interests, and therefore monitoring abnormal share price movement and performance hurdles is important to safeguard the wealth of shareholders and promote effective motivation for managers.

Suggested Citation

  • Wei Shan & Ran An, 2018. "Motives of Stock Option Incentive Design, Ownership, and Inefficient Investment," Sustainability, MDPI, Open Access Journal, vol. 10(10), pages 1-19, September.
  • Handle: RePEc:gam:jsusta:v:10:y:2018:i:10:p:3484-:d:172704
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    References listed on IDEAS

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    More about this item

    Keywords

    stock option incentive; inefficient investment; state-owned enterprises; ownership; abnormal return;

    JEL classification:

    • Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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