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Do ESOPs enhance firm performance?

时间:2010.11.04

 Evidence from China's reform experiment

Rujing Meng, Xiangdong Ning, Xianming Zhou, and Hongquan Zhu
 
October 30, 2010 

 

ABSTRACT
China introduced employee stock ownership plans (ESOPs) in 1992 purely as an employee incentive scheme. The government initiated the policy experiment on ESOPs as part of China's reform of its state-owned enterprises, and it was abruptly terminated two years after initiation. This policy experiment resulted in an exogenous sample of ESOPs that allows us to provide the first evidence from Chinese firms on the performance-ESOP relation. After examining a variety of performance measures, including ROA, ROE, Tobin’s q, and productivity, we find little difference in performance between ESOP firms and non-ESOP firms.
 
JEL classification: G32; J32
Keywords: Employee ownership; Incentives; Firm performance


1. Introduction
In this paper, we use a unique sample of listed Chinese firms to examine the impact of employee stock ownership plans (ESOPs) on corporate performance. Unlike widely examined U.S. plans, the Chinese ESOP resulted from a policy experiment that started in 1992. Before that time, China's predominantly state-owned enterprises (SOEs) did not allow employee ownership. In 1992, the Chinese government took dramatic action by starting the process of corporatization, in which SOEs were allowed to be privatized through share ownership and become an incorporated company. When SOEs became a corporation, they were allowed to adopt an ESOP with the approval of regulatory authorities. This trial policy was terminated two years later when the government abruptly stopped approving new applications for ESOPs. Because the policy applied to all incorporated firms and its timing (from the start to the end) was exogenous to individual firms, this policy experiment provides us with an exogenous sample of Chinese ESOPs.

 


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