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Employee stock ownership plan and stock price crash risk

Yan Li (), Bao Sun () and Shangyao Yu ()
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Yan Li: Renmin University of China
Bao Sun: Renmin University of China
Shangyao Yu: Beijing Technology and Business University

Frontiers of Business Research in China, 2019, vol. 13, issue 1, 1-33

Abstract: Abstract This paper examines whether the announcement of an employee stock ownership plan (ESOP) affects stock price crash risk and the mechanism by which the ESOP may influence crash risk, using a sample of Chinese A-share firms from the period 2014 to 2017. We provide evidence that an ESOP announcement is significantly and negatively related to a firm’s stock price crash risk. An ESOP announcement sends positive signals to the market that insiders are optimistic about a firm’s future value, which helps enhance investor confidence, resist the pressure for a fire sale caused by negative information disclosure, and reduce stock price crash risk. Further research shows that larger-scale, lower-priced and non-leveraged ESOPs are more helpful in reducing crash risk. This paper sheds lights on the impact of ESOPs in a volatile market environment. It also contributes to firms’ implementation of ESOPs and the development of the legal system in capital markets.

Keywords: Employee stock ownership plan (ESOP); Crash risk; Market situation; Signaling effect; Leveraged ESOP; China (search for similar items in EconPapers)
Date: 2019
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