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Equity-based Incentives: A Major Leverage to Strengthen Enterprises’ Ability in Innovation(No.188, 2016)


By Zhang Yongwei & Meng Qingyang, Research Team on “Invigorating Vitality of Innovation Entities”, Enterprise Research Institute, DRC

Research Report No.188, 2016 (Total 5071) 2016-12-22

Abstract: Corporate governance is a major factor influencing enterprises’ innovation, and equity-based incentives play a significant role in promoting enterprises’ innovation. A scientific and reasonable equity-based incentive project could not only bear the risks resulting from innovation failures in the short run, but also give huge returns to the management team in the long run. From the perspective of listed companies, the innovation performance of those that have implemented equity-based incentive project is better than those that have not carried out such a practice. Moreover, the influence on innovation varies with different ways of equity-based incentives and stock options perform better than restricted shares. Besides, private enterprises perform better than state-owned enterprises whether in terms of the number of enterprises that have implemented quantity-base incentives or the effect after the implementation of the project. The government needs to encourage more enterprises, especially non-listed companies, to implement equity-based incentive project to enhance their internal momentum for innovation and remove barriers restricting the implementation of equity-base incentive project. The government also needs to further improve capital market by improving market pricing efficiency so as to ensure that companies’ share price could fully reflect their value and guide the capital market to better support innovative enterprises and the real economy.

Key words: equity-based incentive, innovation, capital market