From Incentives to Innovation: An Analysis of the Impact and Mechanisms of Long-Term Equity Incentives on Corporate Value

Abstract

: Against the backdrop of the global economy’s transition toward an innovation-driven model, equity incentives have become a core institutional arrangement for listed companies to resolve agency conflicts and build a community of shared interests. Based on data from listed companies from 2006 to 2023, this study employs regression analysis and finds that: (1) Controlling for other influencing factors, the continuous implementation of equity incentive plans by Chinese listed companies has a significant positive impact on firm value. (2) Building on the conclusion that continuous equity incentive plans significantly impact firm value, this study analyzes the mechanism through which continuous equity incentives affect firm value via the firm’s innovation capacity to gain a clearer understanding of this relationship. The mechanism analysis reveals that the implementation of continuous equity incentive plans by listed companies significantly enhances their innovation capacity, thereby improving firm value. (3) Heterogeneity analysis indicates that the impact of continuous equity incentives on corporate value varies across companies of different sizes and in different sectors. This study goes beyond the analysis of the short-term effects of one-time incentives, focusing instead on the long-term cumulative effects and lag patterns of multi-period rolling incentives, and examining how the continuous design of incentive plans dynamically guides capital market expectations. Research on this topic can expand the theoretical framework of incentive mechanisms in the temporal dimension, providing a basis for the design of long-term corporate incentives, investor decision-making, and policy optimization.