Can Executive Equity Incentives Curb Corporate Violations?

Abstract

The incentive system constitutes a critical dimension in the study of corporate violations. Executive equity incentives can align interests, reducing the likelihood of violations by listed companies. This paper employs data from non-financial and non-real estate A-share state-owned listed companies spanning 2011–2023 to investigate the impact of executive equity incentives on corporate violations. Empirical results demonstrate that executive equity incentives significantly curb corporate violations. Mechanism tests reveal that such incentives reduce corporate violations by mitigating earnings management. Heterogeneity analyses further indicate that the inhibitory effect of executive equity incentives on corporate violations is more pronounced in non-state-owned enterprises, companies audited by non-Big Four accounting firms, firms disclosing environmental-related information in annual reports, and enterprises with high external supervision transparency.