ESP-4137

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2025-10-24

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Vol. 10 No. 10 (2025): Published

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Research Articles

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Copyright (c) 2025 Zhao Zeyi, Junainah Jaidi*, Debbra Toria Nipo

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How to Cite

Zhao Zeyi, Junainah Jaidi, & Debbra Toria Nipo. (2025). Equity incentives and firm performance: The mediating role of investment efficiency under executives’ political identity. Environment and Social Psychology, 10(10), ESP-4137. https://doi.org/10.59429/esp.v10i10.4137

Equity incentives and firm performance: The mediating role of investment efficiency under executives' political identity

Zhao Zeyi

Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah, 88400, Kota Kinabalu, Sabah, Malaysia

Junainah Jaidi

Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah, 88400, Kota Kinabalu, Sabah, Malaysia

Debbra Toria Nipo

Faculty of Business, Economics and Accountancy, Universiti Malaysia Sabah, 88400, Kota Kinabalu, Sabah, Malaysia


DOI: https://doi.org/10.59429/esp.v10i10.4137


Keywords: Equity Incentives; Investment Behaviour; Firm Outcomes; Political Affiliation; Agency Theory; Expectancy Theory; Social Identity Theory

Abstract

Investment inefficiency remains a critical obstacle to firm performance in China, raising questions about how managerial incentives and political identity shape executive decision-making. Agency, expectancy, and social identity theories jointly suggest that equity incentives may align managerial and shareholder interests, encourage prudent investment decisions via effort–reward considerations, and that executives' political identity may reinforce long-term oriented investment behaviour. Building on these theories, this study examines how equity incentives influence firm performance through investment efficiency, and how executives' political identity moderates this relationship. Using a panel dataset of Chinese listed firms, the empirical results show that equity incentives improve firm performance by approximately 8%, with investment efficiency functioning as a key mediating channel. In addition, executives' political identity, as reflected by Communist Party membership of China, positively moderates this relationship, further reinforcing the effectiveness of equity incentives. Overall, the findings highlight investment efficiency as a behavioural mechanism linking equity incentives to firm performance, demonstrate the reinforcing role of executives' political identity, and contribute to governance research by integrating psychological insights while offering practical guidance for designing effective managerial incentive schemes in emerging markets.

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