Does employee stock ownership plan have monitoring and incentive effects? --An analysis based on the perspective of corporate risk taking.

ABSTRACT

This study uses sample data of Chinese A-share listed companies from 2006 to 2022 and employs methods such as propensity score matching (PSM), difference-in-differences (DID), and instrumental variables (IV) to study the supervisory incentive effect of ESOPs from the perspective of corporate risk-taking. The results indicate that ESOPs significantly increase corporate risk-taking. The specific mechanism is that ESOPs reduce the dual agency costs between shareholders and managers, as well as between managers and employees, thereby alleviating corporate financing constraints and enhancing the level of corporate risk-taking. The enhancement of corporate risk-taking through ESOPs was also found to be of high quality. This is because ESOPs promote R&D investment that benefits the growth of corporate value and also reduce overinvestment and excessive debt that are detrimental to corporate value, thus leading to a higher quality of corporate risk-taking and stronger value effects. In addition, the design differences of ESOPs have different effects on corporate risk-taking leverage, high discount, longer lock-up and tenure periods, and plans managed by third-party institutions have a stronger promotion effect on corporate risk-taking; employee subscription is more effective than executive subscription in promoting corporate risk-taking; in China, ESOPs do not have a "free-rider" problem, and the larger the proportion of ESOP issuance, the more participants, and the larger the scale of funds, the better the implementation effect.