Can employee stock ownership plans reduce corporate financialization? Evidence from China

Using a sample of China’s A-share listed companies from 2012 to 2019, this paper studies the impact of employee stock ownership plans (ESOPs) on corporate financialization. We find that the implementation of ESOPs has a significant inhibitory effect on corporate financialization, and a series of robustness checks indicate that the conclusion is valid. The mechanism tests show that ESOPs decrease corporate financialization by reducing management agency costs and improving internal control. Heterogeneity analyses indicate that ESOPs in firms with higher financing constraints, a lower external audit quality, and higher proportions of executive shareholdings and self-funded employee equity have a much stronger decreasing effect on corporate financialization.