Research On Asset Pricing Of Employee Stock Ownership Plan

ESOP is an equity incentive system which is made for the majority of the generalcompany staffs. It motivates employees’ enthusiasm and also improves company’sefficiency. In nature, the employee stock ownership plan (ESOP) is a kind ofnon-tradable stock, however, the difference between ESOP and general non-tradablestock is that ESOP’s investors are company’s staffs. Generally, ESOP makes positiveincentive effects on employees, which affects the company’s stock, however accordingto previous studies, the impact of incentive effects on the company’s stock price isuncertain. Therefore, the impacts cannot be hedged by constructing market portfoliothat is why the utility indifference asset pricing method is used.In this paper, the utility indifference asset pricing theory is used. Fi rstly, a utilityindifference pricing model about general non-tradable stock is given. Secondly, autility indifference pricing model based on the excitation characteristics of ESOP isestablished. Thirdly, under the assumption of investor risk aversion, w ith the optimalinvestment strategy and continuous-time stochastic control theory, the HJB equationis established. Last, we get the numerical solution of ESOP asset pricing equation byusing finite difference method.The results show that: when the risk aversion coefficient is large enough, ESOPutility indifference price will reduce with the extension of the closure period; theutility indifference price of ESOP increases monotonically as excitation volatilityincreases; The ESOP designers need superb artistic motivation, which covers that It isnecessary to consider employees’ risk attitude, but also give special consideration totheir another identity that they may be investors. Besides, keeping the employees’interest consistent with the company and bringing employees "ownership" of mentalsuperiority are also included. If the incentive is not good enough, employees will havethe psychological state of "free rider" and shunning the crowd, and what’s more worse,they may even reverse on the ESOP, finally the company’s performance will also beadversely affected.