Regulatory Impact And The Market Performance Of ESOP

The stock market in China had been volatile wildly in 2015.To maintain the market stability,CSRC issued series emergency measures including an enforced policy for listed firms that they should implement at least one stability-maintenance measures from five options.As one of those options,ESOP aroused great concern at that time since it had been unbanned for only a year.There is no doubt that,under such regulatory requirements,ESOP has become a half mandatory market value management measures instead of an incentive mechanism launching by firms spontaneously.Hence,except for the effectiveness of market stability maintenance,concerns should be raised both theoretically and practically that whether the incentive role of ESOP has been changed by the regulatory enforcement.Using the data of Chinese A-share listed firms from July 1st 2014 to December 31st 2016,this thesis studies the features of ESOP in China,the impact of the 2015 Regulatory Requirement on ESOP and the effectiveness of ESOP as a stability-maintenance measure.Basing on perspectives of agency theory and signal theory,results are shown as follows.First,unlike typical ESOPs in other countries,the ESOP in China is a kind of short-term share holding plans only for core employees.Second,the incentive role of ESOP has been distorted by the regulatory requirements.The market performance of ESOP appears to be positive significantly when serving as an incentive mechanism,while it is negative significantly as a half mandatory market value management measure.Third,the design of ESOP conveys different signals to the market,but these signals will be impacted by the 2015 Regulatory Requirements also.To be specific,the market performance of ESOPs will be better,when the stocks held by ESOP are from private placement,when the ESOP covers more employees in the firm,and when the top management team subscribes more share in ESOP.But the signals that top management team subscription can perform will be weaken under the regulatory requirements.Forth,as a stability-maintenance measure,ESOP is helpful for firm to reduce the impact of market volatility,but this only exists in firms with high stock price synchronicity.Overall,the evidence of this thesis will be helpful in enriching the study of ESOP in China,and the government intervention in emerging market.