Research On Chinese NEW ESOP And Its Implementation Effect

Human capital is a key link in economic development and value creation(Becker,1962;Schultz,1961).How enterprises should cultivate and utilize human capital,take appropriate incentive measures,effectively stimulate employees to work hard,and make the enterprise value continuously grow is an important issue in the interdisciplinary research of comprehensive management,economics and finance.Employment Stock Ownership Plan(ESOP),as an effective employee incentive system,first appeared in the United States in the mid-20 th century,when it was mainly a part of employee retirement benefit plans(Gordon and Pound,1990).The ESOP Association defines it as an institutional arrangement that allows employees to benefit as equity owners of a company.The essence of the ESOP(ESOP)is to enable employees to participate in the production,operation and management activities of the enterprise as both workers and managers by adjusting the traditional compensation system and the internal equity arrangement of the enterprise and combining the compensation incentive with the property right incentive through the dual mechanism.Since the implementation of the ESOP,there have been some theoretical and empirical studies on the implementation effect of the ESOP,which are used to summarize and verify whether the ESOP plays an effective incentive role on enterprises.Researchers will focus on empirical and ESOP and the correlation of enterprise performance,these studies usually contrast before and after the enterprise implementation of ESOP or the implementation of ESOP and implement the plan of company's share price,return on equity(ROE),and other indicators of change(Kumbhakar and Dunbar,1993;Jones and Kato,1995;Cin and Smith,2002;Meng et al.,2011).The results,however,are mixed.Scholars also differ on whether it has other incentive effects besides enterprise performance.On the one hand,due to the influence of uncontrollable factors such as economy,politics and society,the employees can't get a positive and consistent answer.On the other hand,although they are motivated to make more efforts after obtaining the shares of the company,the performance of the company may not be improved synchronously.On the other hand,it may be that the ESOP has other non-incentive motivations(such as defense against takeovers,tax incentives,or cash constraints).Different from the ESOP in the United States,the employee stock ownership in Chinese enterprises is a kind of stock ownership system arrangement that developed gradually from the reform of state-owned enterprises' company system and shareholdingsystem.Since the pilot reform of state-owned enterprises in the mid-1980 s,the practice of ESOP in China has been under exploration.In a reflection of the complexity of ESOP,it has gone through a period of vigorous promotion and has been suspended on several occasions.In 2014,when China vigorously promoted the reform of mixed ownership,the ESOP was pushed to the forefront of the reform again.In June 2014,China Securities Regulatory Commission issued the guidance on the pilot implementation of the ESOP for listed companies(hereinafter referred to as "New ESOP" or "New ESOP"),which meant that the employee stock ownership system that had been suspended for nearly 11 years was officially restarted.However,for the new ESOP launched in 2014,due to the relatively short years of practice,there is a shortage of literature for theoretical summary and empirical test.Therefore,in the face of complicated international and domestic macroeconomic environment and the downward trend in whole,in order to deepen the enterprise reform,promote the sustainable growth of enterprise performance,under the new situation,the research in our country the implementation of the new ESOP and implementation effect,and verify the economic consequences produced by different factors,not only has important practical significance,but also has higher theoretical and academic value.Specifically,the following issues need to be paid attention to:(1)As an emerging economy,can the new ESOP designed on the premise of mature market be effectively implemented?(2)As for the enterprise,what are the motivations for implementing the ESOP and what are the mechanisms and channels through which it will play its role?(3)From the perspective of external regulators,how to summarize the effectiveness,experience and deficiencies of the implementation of the new ESOP and improve the regulatory system and policies accordingly?(4)Can the implementation of the new ESOP not only produce the enterprise performance effect that people usually verify,but also produce other incentive effects,such as improving the human capital of the enterprise by expanding the staff,reducing the turnover rate and improving labor productivity? The research on the above issues can not only enrich the theoretical literature of China's new ESOP,but also provide empirical evidence for the motivation,economic consequences and implementation effect of China's new ESOP,and provide policy basis for further improving the relevant system.This paper will carry out relevant research from the theoretical and empirical aspects.On the one hand,it reviews the formation background,historical evolution and the current situation of various countries' systems from the theoretical perspective.On the other hand,it focuses on the reform process,implementation effect and existing problems of China's new ESOP,and puts forward Suggestions for improvement.By means of empirical test,this paper analyzes and verifies the economic consequences of China's new ESOP on enterprise performance,human capital and enterprise innovation,and tries to explore how the new ESOP will affect the mechanism and channels of enterprise and individual effects.The main contents of this paper are as follows:First,in this paper,theoretical analysis framework of the basic theory and related theory of line comprehensively,guided by the Marxist theory of the cooperation factory,and using the modern economics of property rights theory,contract theory,principal-agent theory and human capital theory and relevant theory for reference,the summary and review of ESOP relevant forefront of classical literature,both at home and abroad to provide in this paper,we study the theory and literature.Secondly,review the domestic and foreign ESOP system evolution and current development trends.ESOP(ESOP)is an economic incentive system to reform employee welfare.After the ESOP gives the employee shares,the employee can select the management department by exercising the voting right and decision-making right at the shareholders' meeting,so as to realize the supervision and restriction of the management personnel.It is a new institutional arrangement to improve corporate governance and social wealth structure.It can be said that the ESOP has the system advantage of the dual effect of incentive and governance.Again,according to the theoretical basis and the system of ESOP a review of the background,combined with the macro environment of China's "emerging and transition",focuses on analyzing launched in 2014,the objectives of the reform of planning of new staff and contract elements such as characteristics,to establish theoretical framework for the system and practice new ESOP in China,to explore new ESOP and enterprise performance,employee behavior,the relationship between the enterprise innovation and the mechanism of action between them,provide theory for later will carry out an empirical test.Then,this paper adopts empirical analysis method to explore the implementation effect of the new ESOP of China's listed companies.According to existing literature,the main motivations for enterprises to implement the ESOP include incentive motivation,sort motivation,retention,cash conservation and tax incentives(Core and Guay,2001).Oyer and Schaefer,2005;Kim and Ouimet,2014).Based on incentive motivation,thispaper empirically analyses the new ESOP implementation of enterprise performance,employee behavior and the effect of enterprise innovation,and further verify the new mechanism of action of the ESOP influence enterprise performance,enterprise implementation of ESOP other incentive motivation(such as reduce the agent cost,improve production efficiency,to boost the share price and retain talents,etc.).According to the guidance issued by China securities regulatory commission in 2014,employees should not hold more than 10% of the total capital stock.Therefore,compared with the ESOP in western countries,China's new ESOP is less likely to generate non-incentive motives(cash constraint and resistance to takeover).In this paper,we will not study the non-excitation effect of new ESOP.Specifically,this paper conducts empirical research from three aspects and draws corresponding conclusions:First,from the perspective of contract elements of the new ESOP,this paper examines and analyzes the short-term market effect of the announcement of the new ESOP draft of the listed company.This study shows that the announcement of the new ESOP draft significantly improves the short-term wealth of shareholders;especially when the market is in a bear market,the new ESOP draft announcement to a certain extent "corrected" the previous market continued negative valuation.However,the basic contract elements stipulated in the guidance,such as the shareholding ratio of ESOP,the proportion of participating personnel structure,the participation of senior executives and the capital leverage,have no significant impact on the wealth effect announced in the new ESOP draft.In practice,in order to improve the flexibility of new ESOP constraints and incentives,listed companies in China have introduced innovative contract elements,such as guarantee clauses and performance assessment clauses,in addition to the provisions of the guidance.This significantly affects the wealth effect of the announcement of the new ESOP draft;especially in a bear market,the impact is greater.In addition,the implementation of the new ESOP can improve the growth rate of the company's market value,debt and performance.Compared with other industries,the new ESOP of high-tech companies has a more significant effect on the company's financial performance.The higher the proportion of the new ESOP in the total share capital,the greater the improvement of the company's performance;the higher the proportion of executives in the new ESOP,the greater the improvement.Second,from the perspective of employee behavior,this paper examines the impact of China's new ESOP on employee turnover and employee productivity.The results show that the new ESOP can reduce employee turnover and improve employee productivity.After further analysis,this paper finds that the relationship between new ESOP and employee behavior is only significant in non-state-owned enterprises.In state-owned enterprises,the correlation between the two is not significant.Moreover,the relationship between the new ESOP and employee behaviour remained significant when there were significant differences between executive pay and employee pay.Thirdly,through the research on the relationship between the new ESOP plan and enterprise innovation,this paper finds that compared with the enterprises that have not implemented the new ESOP,the enterprises implementing the new ESOP can promote and improve the output quantity and quality of enterprise scientific and technological innovation,and the incentive intensity of the new ESOP is significantly positively correlated with the quantity and quality of innovation output.The new ESOP has a stronger impact on innovation output than executive equity incentives,confirming that core employees are more direct and important innovators.Further analysis also found that the new ESOP promoted innovation output only significantly in non-state-owned enterprises,and the increase of state-owned equity will weaken the incentive effect of ESOP on innovation.The possible innovations of this paper are mainly reflected in the following points:First,from the motivation of the ESOP,this paper summarizes and studies the implementation effect of the new ESOP for the first time.At present,most of the researches on ESOP(ESOP)in China are only focused on the general theoretical mechanism research,accounting treatment analysis and empirical research on market response.Few scholars have conducted empirical analysis on the relationship between ESOP and employee behavior and enterprise innovation.However,after the release of the new standard in 2014,there are even fewer papers on the implementation effect and empirical test of the new ESOP.In this paper,through the analysis of the gauge theory and methods of descriptive statistics,in January 2014 the implementation effect of the new specifications and possible existing problems were discussed,and then use the sample data of listed companies of new ESOP,from the enterprise performance,employee behavior,enterprise innovation on three aspects by the method of empirical study.This paper tests the listed companies in China to implement the new the effect of the ESOP,and try to analyze the ESOP in our country the mechanism of the incentive effect and channel,for the research of ESOP economy consequence provides new evidence.Second,it integrates the two dimensions of employee compensation and ESOP,explores the influence of enterprise incentive measures on employee behavior from abroader perspective,and enriches the literature on enterprise incentive research.Previous researches on incentive mechanism and employee behavior mainly focus on employee compensation incentive.Few literatures have explored the influence of ESOP on employee turnover rate.In this paper,the two explicit incentives of employee compensation and ESOP are integrated to test their influence on employee behavior,which provides a new basis for the research on ESOP and employee behavior.Thirdly,under the new ESOP,the employee stock ownership and incentive intensity are studied in a new way.Due to the limitation of data,most previous researches focus on the impact of equity incentive on enterprise innovation,while the researches on ESOP and enterprise innovation output are relatively rare.Starting from the institutional background of China's new ESOP,this paper studies the functional relationship between new ESOP and enterprise innovation,complements the relevant research in the field of enterprise innovation,and thus enriches the research dimension of ESOP.