Research On The Incentive Effect Of Gratuitous Employee Stock Ownership Plan

In June 2014,China Securities Regulatory Commission issued the guidance on the pilot implementation of ESOP by listed companies,which made detailed provisions on the implementation mode of ESOP,marking the beginning of a new phase of ESOP in China.As of September 30,2018,more than 700 listed enterprises in China have issued more than 900 ESOP plans.The stock sources of ESOP are mainly secondary market repurchase and non-public offering,and a small number of enterprises adopt the form of free gift.Now,almost all the studies are concentrated in the secondary market,repurchase and non-public development lines of employee stock ownership plan,this article delves into the free gift of employee stock ownership plan for enterprise short-term market reaction and the influence of long-term financial performance,based on signal theory,agency cost theory,the psychological ownership theory,this paper argues that the free gift of employee stock ownership plan for enterprise short-term market reaction and long-term financial performance have negative incentive effect,and this article find the cause of negative incentive effect among the three paths,including the market will see the free gift stock as a negative signal,Gratuitous stock donation will increase the agency cost of enterprises and affect the organizational citizenship behavior of employees participating in stock ownership plan in enterprises,thus affecting the market performance and financial performance of enterprises.Moreover,three paths have been verified in the case,which has certain reference value for the design of employee stock ownership plan of listed enterprises.In this paper,Torch Electron Technology CO.,LTD,a company that implemented the employee stock ownership plan without compensation,is taken as a case study.Firstly,this paper analyzes the motivation and feasibility of Torch Electron Technology CO.,LTD's employee stock ownership plan.Secondly,the paper studies the changes of capital market and financial performance after the implementation of employee stock ownership plan.The results show that for the employee stock ownership plan,the capital market is not optimistic in the short term,and there is a negative cumulative excess return rate.And in the long run,through the comparison with comparable enterprises,we find that there are good and bad financial performance indicators.To be specific,the three ability indicators of operating ability,profitability and enterprise value are deteriorated,and the improvement degree of debt paying ability and growth ability indicators is limited.Then,from the perspective of market reaction,corporate governance and organizational citizenship behavior,the paper analyzes the specific path of the negative incentive effect of employee stock ownership plan on long-term financial performance.Finally,according to the conclusion,put forward suggestions for improvement.There are two major innovations in this paper: first,the study on employee stock ownership plan based on gratuitous gift of major shareholders.Currently,in the existing case studies on ESOP,the majority of stock sources are secondary market repos and private placement,and there is no relevant literature on ESOP.Second,this paper makes an in-depth study on the realization path of the negative incentive effect generated by the gratuitous employee stock ownership plan.Existing literatures generally study the impact of ESOP on corporate financial performance and market response,and pay less attention to how ESOP affects corporate financial performance and market response.This paper analyzes how the gratuitous employee stock ownership plan will generate negative incentive effect from the intermediate path of market reaction,corporate governance and organizational citizenship behavior.The shortcoming of this paper lies in the short research period.The new stage of employee stock ownership plan began in June 2014.The announcement of the free gift of employee stock ownership plan of Torch Electron Technology CO.,LTD studied in this paper was made in August 2015.The financial data and market data of the past three years can only be obtained to analyze the incentive effect of employee stock ownership plan.To analyze the incentive effect of employee stock ownership plan over a period of 3 years,long-term tracking and observation are needed.