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Employee stock ownership plans and firm productivity in China

Published online by Cambridge University Press:  01 January 2023

Haitong Li ,
Ziang Lin  and
Bo Huang
Haitong Li
Affiliation:
Renmin University of China, China
Ziang Lin*
Affiliation:
Renmin University of China, China
Bo Huang
Affiliation:
Renmin University of China, China
*
Ziang Lin, School of Business, Renmin University of China, China, No. 59 Zhongguancun Street, Haidian District, Beijing, 100872, China. Email: linziang@ruc.edu.cn
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Abstract

A growing number of Chinese firms motivate their employees through employee stock ownership plans (ESOPs). Using a sample of listed firms in China, this paper examines the impact of ESOPs on firms’ total factor productivity (TFP), as well as the mechanisms of ESOPs. The empirical results show that ESOPs have a positive impact on firm TFP. The mechanism tests convey that ESOPs increase firm TFP by promoting research and development (R&D) investment and mitigating agency costs. These results are robust after accounting for endogeneity and using alternative metrics of TFP. In addition, we find that the positive effect of ESOPs on firm TFP is more pronounced in non-state-owned firms and firms with a less severe free-riding problem. Furthermore, the effect on firm TFP is positively associated with the subscription proportion of non-executive employees in ESOPs. Overall, the results of this study underscore the important role of employee ownership in firms’ productivity improvement.

Keywords

D24G30J33Employee stock ownership planfirm productivityownership structureChinalabour policy
Type
Original Articles
Information
The Economic and Labour Relations Review , Volume 33 , Issue 4 , December 2022 , pp. 829 - 849
Copyright
© The Author(s) 2022

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