An Empirical Study On The Impact Of Employee Stock Ownership Plan On The Cost Of Equity Capital

In June 2014,the China Securities Regulatory Commission(CSRC)issued The Guidance on the Pilot Implementation of Employee Stock Ownership Plan by Listed Companies.The introduction of the guidance provides a new method and path for listed companies to implement incentives,and also means that China’s employee stock ownership plan(Abbreviated as"ESOP")has reached a new level.ESOP in the new era has the characteristics of high flexibility,convenient operation and wide incentive range.Therefore,it has been favored by listed companies since its emergence.The original intention of implementing the ESOP is to improve the participation of ordinary employees in corporate governance,improve the supervision of the management and reduce the rent-seeking motivation of the management.As a new incentive tool,it is an urgent topic to study whether the ESOP brings benefits to the enterprise as it was designed.Taking the cost of equity capital estimated by the model as the outcome variable,this thesis discusses whether the implementation of ESOP will affect it.Through theoretical analysis and combing through the existing literature,it is found that for the purpose of maximizing benefits,the implementation of the employee stock ownership plan may cause irrational behavior of executives and improve the degree of information asymmetry,so that investors can increase the expected rate of return to match the high amount of information risk they assume.At the same time,the implementation of ESOP may cause executives to carry out earnings management,thus pushing up the cost of equity capital.Whether the degree of earnings management plays a complete intermediary role or a partial intermediary role remains to be investigated.Based on this,the sample selected in this thesis is all China’s listed companies except Hong Kong stocks from 2016 to 2020,and makes an empirical analysis on the above problems.This thesis first tests whether the implementation of ESOP will cause executives’ earnings management behavior,then tests the relationship between the implementation of ESOP and the cost of equity capital,finally tests the intermediary effect of the degree of earnings management in this impact through regression analysis,and analyzes the heterogeneity of property rights.This thesis makes a regression analysis of the above problems using statistical software,and draws the following conclusions:1.Due to the selfishness of the management and other reasons,the implementation of ESOP will improve the overall degree of earnings management;2.Compared with the enterprises that have not implemented ESOP,the companies that have implemented ESOP have higher cost of equity capital,and the incentive effect of ESOP is not ideal;3.The degree of earnings management plays an intermediary role in the impact path of the increase of the cost of equity capital caused by the implementation of ESOP;4.ESOP has a weak impact on the cost of equity capital of state-owned enterprises,but it has a significant positive impact on private enterprises.Finally,the thesis summarizes the above analysis results and puts forward some suggestions.