Executive Board resignation: "Children" spoiled by high valuations

Lu Guihua resignation only for cash? As of September 2 this year, more than 40 gem executives have resigned. The money and equity incentives of the executives of the gem are not so good as those of ordinary employees, why should they resign? For a time, many media have analyzed and commented on this, and the more consistent view is that these executives resigned in order to set the shares they hold. This view is undoubtedly very wise, but we have to explore the underlying reasons behind the case, we have to further ask: the interests of the current stock is where? Why is a stock market more profitable than continuing to be employed by a start-up company?　　How does it affect the interests of executives and small and medium investors? Would you like to spend 50 dollars for 100 yuan? You're going to tell me, "Yes!" Executives also said to themselves, "We are too willing!" In other words, executives are willing to cash in when the stock price is higher than the value of the stock; Perhaps, this is the interest of the cash.　　That's the real reason for quitting.　　Where is the benefit of the cash? See chart 1, according to the current institutional arrangement of restricted stock of executive stock, it is not difficult to find that if executives do not resign, they cannot sell their shares within 12 months after the IPO, and 12 months after the listing, the shares must not be sold more than 25% of the shares they hold. If you resign, you will also need to comply with the 12-month lock-up period after the listing, but after 6 months of resignation, you can sell the shares without restriction.　　That is, the number of shares that can be set up after resignation is greater than that of not resigning. Executives chose to resign because the benefits of resignation outweigh the benefits of not resigning. Obviously, the resignation and the benefit of the present is the amount of stock that can be set up after resignation, multiplied by the share price relative to the overvalued portion; the benefits of not resigning, the remuneration for executives, and the amount of stock that can be put out without resigning, multiplied by the overvalued share price relative to the value of the stock. Executive resignation, no doubt in action to tell us that the following inequalities are wonderful: After resignation can be a number of shares of stock X (stock price-stock value) > not resign can be a number of shares of stock X (stock price-stock value) + Remuneration if the overvalued stock price returns to value, If the financial statements announced after the listing will be the real face of these gem companies to show us. The benefits of executive resignation will tend to diminish, and their net benefit from resignation will tend to fall, can they not rush to leave the field?　　But to resign too early, will lose part of the pay, so neither too early, not too late, when to resign the best? In theory, according to chart 1, if the resignation at the end of the 6th month of the listing, 6 months, after the listing of 12 months of lock-up period, the resignation of 6 months after the lock-up period reached, the executives are completely free. Let's look at the actual situation: Among the 28 companies that first landed on the gem in October 2009, 19 executives chose to resign, and they resigned at an average of 5 after listing2 months, we can not help but marvel at the timing of the resignation of these people accurate!　　Does this not provide evidence for our reasoning? Choose to resign, pay must be far less than the increase in the profit after the resignation. For example, June 1 and June 30 this year, the company's vice president for human Resources Wei and vice president of consumer goods Testing division Niepengxiang resigned. They held 429,000 shares and 354,000 shares respectively, according to the price of 22 yuan/share in June, the gross income of the company amounted to 9.438 million yuan and 7.788 million yuan respectively, and according to the corporation's prospectus, 2008 two people's annual salary is 167,900 yuan and 339,300 yuan respectively. Are executives willing to give up huge cash gains for almost insignificant pay?　　Does this not also provide evidence for the above inequalities? Executives may explain that quitting is not necessarily the case. First, remind readers to keep an eye on the announcements from these companies this October about executives resigning. Second, we can also observe the gem of the "Big Brother"-the board. June 18, 2008, Hu Mijian, vice chairman of the Chinese intelligence, resigned, after 6 months of restricted selling period, that is, January 2009, Hu is reducing her holdings of 50%. In December 2009 and this January, Hu also reduced the share of its 50% per cent of its holdings. In the era of market economy, we can not fully believe in morality, we believe in interests. The direction of profit, can not reduce?　　Does this not also provide further evidence for the above inequalities?　　Are gem companies overvalued? Let's start by looking at a simple story. Assume that the average annual investment return rate is 10%. At the beginning of this year, we will make a profit of $0.10 for $1. Assuming there is such a stock, the earnings per share is 0.10 yuan each year, if we want to earn 10% of the return on investment, we are willing to pay for the stock price is 1 yuan. The P/E ratio is 10 times times. The current 1 yuan and stock trading is completely equivalent to the transaction. If the P/E ratio is really about 10 times times, will the executives reduce their holdings? Reduction, the future annual earnings per share of 0.10 yuan, and executives want to earn 0.10 yuan in other places of profits, also need to invest 1 yuan.　　After analyzing the inequalities we discussed before, the price of the stock is equal to the value, the executive obviously will not reduce. We analyze two special situations, first, if the stock price is 2 yuan, the P/E ratio is 20 times times. If the executive to reduce the stock, that is to give up the stock in the future of 0.10 yuan per share earnings, but the executive will reduce the income of the 2 yuan invested in other places, can earn 0.20 yuan/year earnings, executives will reduce it? Second, we still assume that the stock price is $1. Executives are insiders, if he felt that the company's future performance will fall, that is, the future of less than 0.10 yuan per year of profits, reduce, give up the stock of the future of less than 0.10 yuan per share earnings, and will reduce the income of 1 yuan investment in other places, executives can earn 0.10 yuan of income,Will executives be underweight?　　In other words, if we observe the relatively high price/earnings ratio of the gem, and the return on investment tends to fall or the profit growth is relatively low, we can infer that the gem stock will be higher than the value of the stock, that is, its shares may be overvalued. We selected a sample of the company from which the resignation executive was a member. As shown in Figure 2, on average, the resignation of senior executives in the gem company's earnings multiples, in the Shanghai and Shenzhen listed companies (including the SME board and GEM companies, the same below), is the highest 25%, that is, its valuation level of more than 75% of the companies. According to the 2010 interim report, the average return on net assets of the sample companies was only 3.5%, lower than the average of the companies in the cities, the lowest 45% in the cities, or 55% of the companies had a higher return on net assets than those in which the executives resigned, and on average, Compared with the same period last year, the rate of return on net assets decreased by 10.3%. In the first half of this year, the company's profit growth averaged 16.6% per cent, the lowest 55% in the cities, with 45% of the companies earning higher profits than the first-time companies to which the executives resigned.　　The high P/E ratio, the return on investment, and the increase in earnings are far below expectations, as the game we played earlier shows that the stock prices of the gem, which belonged to executives before their resignation, may be somewhat overvalued.　　How does it affect executives and small and medium investors? In the case of net-bed technology, the company has a earnings ratio of 74.82 times times September 9, 2010. The company's 2010 medium-term net asset yield of only 2.1%, the Shanghai and Shenzhen companies in the lowest 30%, its 2010 medium-term net profit year-on-year decline of 30%, net profit growth is the lowest 30% of the cities. According to these data, the net-stay technology's P/E ratio should be lower than the average level of the cities. We are conservative in some estimates, assuming that the net-bed technology in the theoretical price-earnings ratio of the two cities, that is 45.7 times times, net-tech 2009 earnings per share of 0.55 yuan. The former general manager, Peng, who has resigned from the company, holds 2.5383 million shares of the company, and if successful, its net income is the net-price-earnings ratio (price/earnings of Net-tech) x per share x set of current shares = (74.82-45.7) x0.55x 253.83=4065.34 million that is because of the Internet technology stock price overvalued, resignation of senior managers can reach 40 million yuan net income!　　If the market is smart enough to correct overvalued stock prices, then the stock price will return to the value of the executive, then the small and medium-sized investors will be "donated" to the executive "40 million Yuan!" We may as well make an analogy, if we promise to give the child's pocket money is 10 yuan a week, but out of doting, we gave the child 20 yuan, the child can not happy? Similarly, if the stock price is only worth 10 yuan, the underwriters, analysts andCity company Big shareholder this benefit chain of the joint action, the investor pays 20 yuan Price, the big shareholder and the executive can how not happy? Is it a kind of indulgence that investors are almost frantically chasing the stock of gem?　　Is it this indulgence that ultimately causes executives to "ignore" and cause executives to resign?　　Good shareholders, do not spoil to the "children", because of excessive indulgence, pay the price is our own. (the author for the Central University of Finance and Economics) the sale of Executive Stock restrictions (Chart 1) after the lock-up period after the listing of 12 months after the IPO to reduce the number of shares held in excess of 25% resigned after the unrestricted 12 months after the resignation of 6 months after the resignation of the data source: the author of the Division's Valuation and Performance (Chart 2) company earnings ratio position Net asset return 2010 Net profit position 2010 position 2009 Year-on-year Lower medium-term year-on-year decrease net profit growth Kang te 63.6 highest 35% 2.8% lowest 35% 1012.0 8.4% of the lowest 45% pathfinder 82.2 the highest 25% 5.4% the lowest 65% 17.1% 11.7% 2525.6 34% the lowest 65% web accommodation technology 74.8 the highest 25% 2.1% the lowest 30% 12% 9.9% 1498.3 -30% of the lowest 30% Fahrenheit test 56.5 the highest 40% 4% the lowest 55% of 17.1% 13.1% 2753.1 2.9% the lowest 45% si Bao technology 58.5 the highest 40% 4.5% the lowest 60% 18.6% 14.1% 1774. 0 10.2% of the lowest 50% flush 64.8 the highest 35% 4.1% the lowest 55% 25.9% 21.8% 4276.8 26.6% the lowest 60% game for the smart 93.4 the highest 20% 2.6% the lowest of 35% 10.7% 8.1% 1316. 1 30% the lowest 65% new states 84.8 the highest 20% 4.4% the lowest 55% the 15.4% 11%-4160.7 the lowest 67.4% huayi Brothers 80% the highest 131.8 10% the lowest 2% 25% 11.4% 9.5% 7-11.7% the lowest 35% Jinya technology 75.6 the highest 20% 3.4% the lowest 45% 7.7% 4.2% 2303.5 22.9% the lowest 60% Huayang Smart 97.3 the highest 20% 2.9% the lowest 40% 2.5%-0.5% 862. 2 22.3% the lowest 60% sample average 80.3 the highest 25% 3.5% the lowest 45% 10.3% 16.6% the lowest 55% cities average 59.8 4.6% 72.6% Two cities median 45.7 4% 14.5%