ABSTRACT

Equity incentive mechanism is an effective way to solve the principal-agent problem, which plays a positive role in enhancing the governance structure, reducing agency costs and improving the management level. Starting in 2006, the Ministry of Finance, CRSC and SASAC have issued a series of regulations about the equity incentive mechanism, which provide legal protection for the implementation of equity incentives in Chinese listed firms from the institutional level. From then on, more and more firms start to provide equity incentives to the managers and core employees. By the end of 2013, the number of equity incentive plans released in Chinese stock market is 597.