Restricted Equity Incentive and Stock Price Crash Risk: Evidence from China A-share Listed Companies (Journal of innovation and development)

Summary

• Of 556 unique companies, 153 adopted a restricted equity incentive plan (27.6%) and 403 did not; the sample has 5,908 annual observations.p.4
• The DID coefficient is positive and significant, equal to about 7.4% and 5.7% of the standard deviations of the two crash-risk measures.p.2
• The effect is stronger in state-owned enterprises (NCSKEW 0.0722) than in non-state-owned enterprises (0.0415).p.8
• The high Tobin q coefficient (0.1012) is about 2.6 times the low q coefficient (0.0385).p.8
• In the event study, NCSKEW coefficients rise from 0.1098 at t=0 to 0.2879 at t+3.p.9
• With a one-year lagged dependent variable, Restrict stays positive for NCSKEW (0.0644) and DUVOL (0.0535).p.10

Key insights

1. Restricted equity incentives significantly increase stock price crash risk among China A-share listed companies in 2012-2022.p.1
2. Restricted equity incentive plans were adopted in a staggered way between 2014 and 2022, which supports the DID identification.p.2
3. NCSKEW and DUVOL are highly correlated (0.9501), and Restrict is positively correlated with NCSKEW (0.1040) and DUVOL (0.1017).p.6
4. The effect is stronger in state-owned enterprises, large enterprises, high-growth enterprises, enterprises with concentrated ownership and enterprises with higher profits.p.1
5. Event-study results show effects that accumulate after implementation, with NCSKEW coefficients rising to 0.2879 at t+3.p.9
6. In the matched sample, Restrict remains positive for NCSKEW (0.0585) and DUVOL (0.0482).p.10
7. Investors should treat adoption of a restricted equity incentive plan as a potential risk signal, especially in opaque and weak-governance companies.p.11