Research On The Incentive Effect Of China Employee Stock Ownership Plans ——Based On The Perspective Of Employees Participation

After more than 40 years of rapid development,China's economy has entered a new normal period.With the gradual loss of the advantage of population dividend and the diminishing marginal income of large-scale capital investment,activating the vitality of labor factors and improving the productivity of labor force have become an important means for the completion of economic transformation and upgrading and the realization of high-quality sustainable development.For the enterprises,employees are the owners of labor factors.To activate the vitality of labor factors is to activate the enthusiasm of employees in enterprises.However,the interests of employees and enterprises are not completely consistent,thus employees may reduce their enthusiasm for work in pursuit of their own interests.The important mechanism to solve this problem is to implement equity incentive for employees and link their personal interests with enterprise interests(Jensen and Meckling,1976;Grossman and Hart,1986).Employee stock ownership plans(ESOP)is one forms of the equity incentives for employees.However,there is no consistent conclusion on whether ESOP have incentive effect or not.Some studies say that ESOP can effectively change the working attitude of employees in the enterprise,encourage employees to pay more efforts,so as to improve enterprise performance(Rosen and Quarrey,1987;Jones and Kato,1995;Cin and Smith,2002;Blasi et al.,2008;Kato et al.,2016).Other studies say that ESOP don't have incentive effect,but will aggravate the free riding problem within the enterprise,or become a tool for executives to build trenches,which can not have a positive impact on the enterprise performance(Kruse,1992;Conte et al.,1996;Oyer,2004;Kruse et al.,2010).These studies take the enterprises in mature economies such as Europe,America or Japan as the research samples.The differences of policy implementation background and corporate governance make the research conclusion may not suitable for China which is a transitional economy.Whether ESOP in China has incentive effect needs local empirical evidence.Base on this view,this paper studies the incentive effect of ESOP from the perspective of employee participation,taking the opportunity of the restart of ESOP system by CSRC in 2014.As the owner of enterprise labor factors,can ESOP have an effective incentive effect on it,so as to improve the production efficiency of enterprises?Innovation and sales are the most important business activities of an enterprise.How will ESOP affect them? If there is incentive effect in ESOP,what is the mechanism behind it? In addition,Whether the internal and external characteristics of enterprises will affect the incentive effect of ESOP,and whether the characteristics of ESOP affect the incentive effect.This paper will focuses on these question.Specifically,this paper takes 2010-2018 China's A-share non-financial listed companies as a sample.Based on the two factor theory,stakeholder theory,principal-agent theory and social exchange theory,this paper will examine the impact of ESOP on labor productivity,innovation sustainability and customer stability from the perspective of employee participation,and further analyzes the impact of ESOP on enterprise labor productivity,innovation sustainability and customer stability.And further study will analyze the mechanism behind it.The main contents of this paper are as follows:Chapter 1 Introduction.This chapter first introduces the background of this paper,and on this basis leads to the main research issues,then introduces the research ideas and research methods,and finally points out the theoretical contribution and practical significance of this paper.Chapter 2 Literature Review.This chapter mainly reviews the literature related to ESOP the impact of employees on corporate behavior.On this basis,it summarizes the existing literature and points out the research space of this paper.Chapter 3 Institutional Background and Theoretical Analysis Framework.This chapter first introduces the development of ESOP in China,and describes the current situation of ESOP.Secondly,based on the two factor theory of capital and labor,stakeholder theory,principal-agent theory and social exchange theory,this paper analyzes the internal logic of the incentive effect of ESOP,and analyzes the incentive effect of ESOP on employees from three dimensions: labor productivity,innovation sustainability and customer stability.Thus forming the whole logical analysis framework of this paper.Chapter 4 ESOP and Employee Productivity.This chapter studies the impact of ESOP on labor productivity from the perspective of employees as owners of labor factors in enterprise production activities.Through ESOP,employees obtain the equity of the enterprise,thus having the dual identity of labor factor owner and capital element owner,and obtaining the claim right of enterprise residual income,which is conducive to enhance the efforts of employees in work,increase the investment of employees' exclusive human capital,attract more excellent employees for the enterprise,and enhance the effect of internal supervision of the enterprise Improve the labor productivity of enterprises.Furthermore,this chapter analyzes the differential impact of ESOP on labor productivity when the internal and external environment of the enterprise is different,and the implementation characteristics of ESOP are different.Chapter 5 ESOP and Innovation Sustainability.In this chapter,we study the impact of ESOP on the innovation sustainability from the view of employees participation in the innovation activities.As the actual executor of enterprise innovation activities,employees are the key figures that affect the sustainability of enterprise innovation.The implementation of ESOP can bind the interests of employees with the interests of enterprises for a long time,and obtain higher loyalty of employees,so as to maintain the stability of employees and alleviate the high adjustment cost constraints faced by enterprises' continuous innovation activities.In addition,the implementation of ESOP can also send positive signals to the outside world,reduce the information asymmetry of external investors,and alleviate the high financing cost constraints faced by enterprises' continuous innovation activities.The empirical results of this chapter also confirm that ESOP can effectively improve the innovation sustainability of enterprises under the joint action of the two mechanisms.Chapter 6 ESOP and Customer Stability.In this chapter,we study the impact of ESOP on the customer stability based on the role of employees in enterprise customer relationship.Employees are the bridge between enterprises and customers,which plays an important role in the relationship between enterprises and customers.Customer loyalty to employees and employee loyalty to enterprises are the two cornerstones for enterprises to maintain customer stability.ESOP can give employees the right to claim the residual income of the enterprise,so as to stimulate the enthusiasm of employees in their work and improve the satisfaction and loyalty of customers to employees and enterprises.In addition,ESOP can also reduce the probability of employees leaving the enterprise and enhance the loyalty of employees to the enterprise.The empirical results of this chapter also confirm that ESOP can effectively improve the customer stability of enterprises under the joint action of the two mechanisms.Chapter 7 Conclusion.Firstly,this chapter summarizes the conclusions of this study.Secondly,we discuss the lack of this study and the direction of further research.Finally,we summarize the relevant research enlightenment according to the conclusion of this study.Employees are important part of the enterprise.How to effectively incentive employees is an important issue,this paper studies the incentive effect of ESOP in China,mainly contributes to the following five aspects:Firstly,based on the special situation in China,this paper research the incentive effect of ESOP.Past literatures of ESOP are mainly based on the enterprises in developed economies such as Europe and the United States,and did not find a unified conclusion(Kruse,1992;Jones and Kato,1995;Oyer,2004;Kato et al.,2016).As a transitional economy,China's macro-economic environment,policy background and corporate governance are different from those countries,so we can't directly apply the current research conclusions.This paper takes the opportunity of CSRC to restart ESOP system in 2014,empirically tests the incentive effect of ESOP,explores the mechanism behind it,enriches the literature of ESOP and provides theoretical support for further promotion of ESOP in China.Secondly,based on the perspective that employees participate in the production and operation activities of enterprises as labor factors,this paper constructs the research framework of employee participation in enterprises,and studies the incentive effect of ESOP in China.As a labor factor,employees mainly play the role of front-line executors in the enterprise,and have an impact on the enterprise mainly through their own jobs,but the influence on the overall performance of the enterprise is limited(Chen et al.,2015;Wan,2018).Based on the most important innovation and marketing activities in enterprise activities,this paper constructs a research framework of employee participation from the perspective of employees as labor elements,and uses this framework to study the incentive effect of ESOP in China,enriching and expanding the research dimensions of the incentive effect of ESOP.Secondly,based on the role of employees as the executors of enterprise policies,this paper constructs a research framework of employee participation and studies the incentive effect of ESOP.Different from the managers,employees mainly play the role of policy executors in the enterprise,which is difficult to affect the formulation of production and operation policies of the enterprise,and can only have an impact on the enterprise in their own jobs(Chen et al.,2015;Wan,2018).Based on the role of employees in the production and operation activities of enterprises,this paper constructs a research framework of employee participation,and studies the incentive effect of ESOP from this perspective,which enriching and expanding the research dimension of ESOP incentive effect.Thirdly,this paper attempts to establish a representative system of incentive effect of ESOP from the perspective of employee participation.Because the behavior of employees is difficult to observe and the relevant data is difficult to obtain,most of the previous literature studies on the incentive effect of ESOP choose the results indicators such as performance,but employees play the role of executors in the enterprise,which has a weak impact on these results indicators.From the perspective of employee participation,this paper selects process indicators such as labor productivity,innovation sustainability,customer stability,which are related to employees' jobs.This paper provides a useful reference for evaluating the incentive effect of ESOP in China.Fourth,this paper provides a reference for enterprises to choose appropriate ESOP in practice.There are differences in the incentive effect of ESOP in enterprises with different internal and external environment.The incentive effect of ESOP is better in labor-intensive enterprises,state-owned enterprises,high-tech enterprises and high market competition environment.Such enterprises should actively implement ESOP.At the same time,according to different corporate goals,we should choose different characteristics of ESOP.For short-term goals such as labor productivity and customer stability,the incentive effect of large-scale,secondary market purchase and short lock regular employee stock ownership plan is better;for long-term goals such as innovation sustainability,the incentive effect of appropriate range,non-public offering and long lock regular employee stock ownership plan is better.Fifthly,this paper provides policy suggestions on the characteristics of ESOP,such as participants and capital sources.China's ESOP allows both executives and ordinary employees to participate in,but the incentive effect of ESOP mainly comes from the part of ordinary employees,the executives have no significant impact.And in practice there are ESOPs which only have executives participate in,which reminds the regulators to pay more attention to the participants of ESOP.In addition,although leverage financing can increase the employee's shareholding ratio,it also increases the risk of stock price volatility,and ultimately ESOP have no incentive effect.This also reminds regulators to pay more attention to the capital source of ESOP.Regulators should guide the participants and capital sources of ESOP in policy,so as to help ESOP play a better incentive effect in enterprises.