Executive Equity Incentive Contract Characteristics and Corporate Cash Holdings: Based on the Identification Strategy of PSM-DID Method

Abstract

Abstract:

Based on the agency theory of cash holding, this paper attempts to find out the functional paths of executive equity incentive and the differences of contract characteristics. Taking the companies that implement the equity incentive in Shanghai and Shenzhen A-shares as sample, the econometric analysis shows that:After the implementation of executive equity incentive plan, corporate cash holdings, especially excess cash holdings, have reduced; The level of cash holdings reduce more significantly with constant incentive and exercising constraints in equity incentive contract, moderately with stock option and validity period, but no difference with incentive intensity. Furthermore, cash holdings level reduces more in low investment opportunities and low financial constraint companies. PSM-DID analysis results also support the conclusion that there exists the net effect of executive equity incentive on cash holdings. Cash holdings have agency problems and executive equity incentive can play a certain inhibitory role, and the contract characteristics will also be different. The conclusion provides a reference for executive equity incentive and cash management.

Key words: equity incentive contract, cash holding, investment opportunity, financial constraint

Liu Jingjian, Zhao Gexin, Wang Jian. Executive Equity Incentive Contract Characteristics and Corporate Cash Holdings: Based on the Identification Strategy of PSM-DID Method[J]. , 2018, 30(7): 231-244.

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