Research on the Impact of Executive Shareholding on New Investment in Enterprises Based on Multivariable Linear Regression Model

TL;DR

This study investigates how executive shareholding influences corporate innovation investments in Chinese A-share companies, revealing a positive correlation but also highlighting complex effects on agency costs that impact innovation outcomes.

Contribution

It introduces a multivariable linear regression approach to analyze the nuanced effects of executive shareholding on innovation and agency costs, providing empirical insights specific to China's market.

Findings

Executive shareholding positively correlates with increased innovation investment.

Higher executive shareholding reduces the first type of agency cost.

It increases the second type of agency cost, affecting innovation negatively.

Abstract

Based on principal-agent theory and optimal contract theory, companies use the method of increasing executives' shareholding to stimulate collaborative innovation. However, from the aspect of agency costs between management and shareholders (i.e. the first type) and between major shareholders and minority shareholders (i.e. the second type), the interests of management, shareholders and creditors will be unbalanced with the change of the marginal utility of executive equity incentives.In order to establish the correlation between the proportion of shares held by executives and investments in corporate innovation, we have chosen a range of publicly listed companies within China's A-share market as the focus of our study. Employing a multi-variable linear regression model, we aim to analyze this relationship thoroughly.The following models were developed: (1) the impact model of executive shareholding on corporate innovation investment; (2) the impact model of executive shareholding on two types of agency costs; (3)The model is employed to examine the mediating influence of the two categories of agency costs. Following both correlation and regression analyses, the findings confirm a meaningful and positive correlation between executives' shareholding and the augmentation of corporate innovation investments. Additionally, the results indicate that executive shareholding contributes to the reduction of the first type of agency cost, thereby fostering corporate innovation investment. However, simultaneously, it leads to an escalation in the second type of agency cost, thus impeding corporate innovation investment.