Duopoly, mixed ownership, and the optimal proportion of employee stocks in state‐owned enterprises in China

Abstract

We examine the optimal proportion of employee stocks in two kinds of duopoly markets: The first market includes two mixed‐ownership state‐owned enterprises (SOEs), and the second market includes one mixed‐ownership SOE and one private enterprise. We introduce the particularities of employee stock ownership plans in SOEs in China to the subjective function and cost function. We find that partial holding, full holding, or non‐holding can be optimal, and the optimal proportion depends on the types of rival firms, the efficiency gap in different kinds of shares, and employee behavioral tendencies. Moreover, the optimal proportion of employee stocks is subject to external institutional environment.