Employee Stock Ownership Plan，Collective Incentives and Enterprise Innovation

Abstract

As an internal incentive mode for enterprise development, Employee Stock Ownership Plan（ESOP）has got great attention and been widely used in US. In China, whether ESOP is suitable for China’s national conditions and whether it is essentially consistent with China’s socialist nature require theoretical explanation and empirical test. Although some studies have found that ESOP does promote enterprise innovation, its role and mechanism are always confused with those of equity incentives. Moreover, its unique role to enterprise innovation in theory is also automatically ignored as a “black box” with little systematic theoretical analysis. This leaves a large space for studying how ESOP promotes enterprise innovation.Therefore, this paper attempts to study the collective and cumulative incentive effects of ESOP on enterprise innovation by redefining the core nature of ESOP. Based on the basic theoretical assumptions, this paper applies the propensity score matching model and the difference-in-differences model（PSM + DID）to identify the impact of collective ESOP on enterprise technological innovation by using the policy impact of ESOP restart in China in 2014. The sample data of listed companies in Shanghai and Shenzhen stock markets from 2013 to 2017 have been used, and the empirical results show that: ESOP has a significant incentive effect on innovation; this effect does not increase linearly, but shows a U-shaped cumulative effect; and it is not notable in the short term. In addition, ESOP is significantly attractive for innovative talents, and it has different incentive effects for different types of enterprises. The research provides important policy suggestions on how to promote the application of ESOP in the innovation of Chinese enterprises and how to implement the basic socialist distribution system.The anticipated contributions of the paper are:（1）It identifies the core nature of ESOP as the collective incentive that can form the collective innovation power of enterprises. This reveals the mechanism of the “black box” effect of ESOP on enterprise innovation, and deepens the correlation analysis between this theoretical logic and the socialist basic economic system with Chinese characteristics; （2）To analyze the cumulative effect of ESOP on enterprise innovation, its attraction effect on innovative talents and its different incentive effects for different types of enterprises from the perspective of collective incentives for ESOP will make the research both logical and practical, and more systematic; （3）Based on Chinese data, it combines the propensity score matching model with a series of robust estimation methods to avoid potential endogenous problems as much as possible in policy evaluation. These methods not only are explorations and deepening based on previous researches, but also will provide data support for understanding the superiority of the current system for ESOP and the special national conditions, and for policy advice purposes.