TITLE:
Equity Incentives, Inefficient Investment and Stock Price Crash Risk—Taking GEM as an Example
AUTHORS:
Meng Xu, Yan Cheng
KEYWORDS:
Equity Incentives, Inefficient Investment, Overinvestment, Risk of Stock Price Crash
JOURNAL NAME:
Open Journal of Social Sciences,
Vol.8 No.8,
August
27,
2020
ABSTRACT: The crash effect brought about by the “slump” of the stock price of the capital
market has severely damaged the stability of the financial market, and the existing
research mainly focuses on the reasons for the risk of the stock price crash.
From the perspective of how to mitigate the risk of crash, this article discusses
the governance effect of equity incentives to resolve the risk of stock price
crash, and intends to clarify the logical relationship among equity incentives,
inefficient investment, and stock price crash risk. Research shows that there
is a significant negative correlation between equity incentives and the risk of
stock price collapse on the GEM; equity incentives can effectively suppress the
inefficient investment of executives, especially the tendency of overinvestment,
thereby reducing the risk of the company’s stock price crash; that is, inefficient investment plays an incomplete
intermediary role. The conclusion of the study provides important inspiration
for the company’s internal governance and capital market risk prevention.