Employee stock ownership plans and capital expenditures in China

Jin Dai, Chong Gao and Qian Sun

Accounting and Finance, 2024, vol. 64, issue 4, 4095-4130

Abstract: This study examines how employee stock ownership plans (ESOPs) affect long‐term investments or capital expenditures in China. Using a sample of listed companies from 2011 to 2021, we find that ESOPs negatively affect capital expenditures. This negative effect is stronger for firms with less institutional shareholding and older CEOs. Also, the effect is more pronounced for ESOPs with shorter vesting periods, debt financing, higher employee participation rates and more managerial holding. These results indicate that the unique features of China's ESOPs are likely to foster managerial opportunism and lead to a decline in long‐term investments for ESOP‐adopting firms. This study highlights the importance of the design of an ESOP, as it can erroneously impact the incentives of ESOP participants.

Date: 2024
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