The Nonlinear Relationship between Esops and Firm Performance : Evidence from China

On June 20, 2014 the China Securities Regulatory Commission (CSRC) issued the “Guidance on the pilot implementation of employee stock ownership plan (ESOP) by listed companies” which marked a new era of the employee ownership of Chinese listed companies. The purpose of the “Guidance” was to stimulate employees’ enthusiasm and align their interests with those of owners through the implementation of ESOPs. This study examines the impact of employee and executive ownership on the accounting and market-based performance of 620 Chinese listed companies from 2014 to 2020. Using pooled cross-sectional regression analysis, the results reveal a curvilinear relationship between ESOPs and firm performance. In specific, the results suggest that there is an inflection point of the inverted U-shaped relationship between ESOPs and firm performance indicators. Moreover, the results reveal a U-shaped relationship between executive ownership and company performance