Abstract: Based on the Stochastic Frontier Model（SFM）, this paper quantitatively estimates the corporate governance efficiency, and the impact of equity incentives on the governance efficiency. Then, we reveal the mechanism of equity incentive on governance efficiency by examining the equity incentive effect on two kinds of agency costs. The results show that, the average efficiency of the governance of listed companies is 74.7%~75.4%, and shows a declining trend. Equity incentive is negatively correlated to the agency cost,which means that improving the level of equity incentive can effectively reduce agency costs and improve the efficiency of corporate governance. Further test shows that, equity incentive improves the corporate governance efficiency mainly by reducing the agency cost I, but not the agency cost II.

Key Words: equity incentive; governance efficiency; agency cost I; agency cost I