ESOP Confusion on Major Shareholder's Share Selling: Based on Comparative Analysis between the Equity Incentives and Employee Stock Ownership Plans

Abstract

Abstract:

Re-introduction of Employee Stock Ownership Plan is a new institutional exploration in Chinese stock market. However, in last 4 years, ESOP has been mired in controversies because of the floating loss and controlling shareholder's share selling. This paper first compares ESOP with proven equity incentives and then uses difference-in-difference matching estimators to compare different effects between the two incentive approaches and find out the underlying reasons. The results show that, firstly, firms implementing ESOPs have less improvement in financial performance compared with these employing equity incentives. Secondly, the unlocking of restricted stock has significant positive effect on the implementation of ESOP in the future. Thirdly, investors could distinguish ESOPs containing self-interest motivation of major shareholder from common ESOPs by stock resources, so such ESOPs might have a significantly downward market reaction in short term. These findings provide empirical evidences for the further improvement of ESOP's policy design and the supervision on major shareholders' uncommon selling approaches. These findings could enrich the studies of equity compensation contract as well.

Key words: employee stock ownership plans(ESOP), equity incentives(EI), shareholders' share selling, major shareholders' self-interest

Hao Yongliang, Jin Xin, Zhang Yongji. ESOP Confusion on Major Shareholder's Share Selling: Based on Comparative Analysis between the Equity Incentives and Employee Stock Ownership Plans[J]. , 2019, 31(10): 164-177.

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