Employee Stock Ownership Plans And Corporate Innovation

Employee Stock Ownership Plan(ESOP)is an employee benefit plan which makes the employees of a company owners of stock in that company.In June 2014,China Securities Regulatory Commission issued the "Guidelines on Listed Companies ESOPs".By the end of 2016,388 companies have established ESOPs.Employees are the most direct source of corporate innovation,and optimal incentive scheme can motivate employees to innovate.But as an incentive scheme,the effect of ESOPs to innovation is under debate.Ederer and Manso(2013)provide evidence that the combination of tolerance for early failure and reward for long-term success is effective in motivating innovation,but Bova et al.(2014)find a negative link between risk and non-executive holding of stock.In China,due to the short time of ESOPs implementation,existing domestic literature only explores the announcement effect of ESOPs.Under the background of China's national strategy "popular entrepreneurship and innovation",it is of great theoretical and practical significance to study whether ESOPs can spur the creativity of employees and enhance corporate innovation.By choosing A-share listed companies during 2014 to 2016 as study sample,using the number of patent applications as measure of corporate innovation,we examine whether ESOPs can promote corporate innovation.We provide empirical evidence on the positive effect of ESOPs on private corporate innovation.After using PSM and IV methods to solve endogeneity issues,ESOPs still play the role.ESOPs promote innovation by sorting and retention.Further analyses reveal that the positive effect is more pronounced when the size of ESOP is larger,when employee subscribe proportion is higher,when locked period is longer,when stock value increases,when money comes from employee salary,and when stocks come from non-public offering.We not only enrich the study on innovation,but also reveal the mechanism ESOPs promote corporate innovation,which provide theoretical and practical support to foster innovation capability in Chinese companies.