Due to the immaturity of bond market and the defects of internal governance structure, Chinese-listed companies have a strong preference for equity financing. How to reduce the cost of equity capital is particularly important for Chinese-listed companies. As an equity incentive system, employee stock ownership plan (ESOP) can reduce the agency conflicts among shareholders, executives, and employees to some extent. These reduced conflicts will, in an efficient capital market, be reflected in a lower cost of equity capital. This paper investigates whether the implementation of ESOP in a new era in China affects the cost of equity capital and further explores whether the impact of ESOP on the cost of equity capital is affected by the ownership nature, the firm size, and the contract design of ESOP. The results show that the implementation of ESOP reduces the cost of equity capital of enterprises. Compared with state-owned enterprises and large enterprises, the implementation of ESOP is more likely to reduce the cost of equity capital in non-state-owned enterprises and small enterprises. Furthermore, the reduction effect of ESOP on the cost of equity capital is influenced by the contract design of ESOP. This study not only enriches the literature on the relationship between employee stock ownership and the cost of equity capital but also provides a new idea for listed companies to reduce the cost of equity financing.
As a star of emerging industries in China, internet-based finance has been developing rapidly. This paper, considers selecting a more suitable valuation model to measure the intrinsic value and price bubble of Internet-based Finance stocks. By comparing the relative valuation accuracy of the Kim et al. model with the Frankel-Lee model and the F-O model applied in the prior studies, this study finds that the Kim et al. model highlights the industry-specific features and outperforms other models in interpreting stocks price variation. Especially, under the circumstance of soaring and slumping stocks price variation (e.g. 2015), it is essential to study the price bubbles of internetbased finance stocks at different points of Shanghai Stock Exchange Composite Index. Surprisingly, our empirical results suggest that the internet-based finance stocks have negative bubbles at the whole average level, and about half of them are undervalued. Moreover, there are positive correlations between the bubble level and three key factors including the trading volume, the price to book ratio and whether to do cross-industry business on internet-based finance. These findings imply that the Kim et al. model contributes to improving valuation accuracy of internet-based finance stocks and explainability of the price bubbles in A-share market.
Enterprise innovation is a key driver of national economic growth. How to stimulate employees’ innovation vitality to improve the company’s innovation input and output has always been a hot topic. Employee Stock Ownership Plan (ESOP) is one of the effective means to stimulate employees’ innovation vitality by linking employee wealth with firm value. The purpose of this paper is to examine the effect of ESOP implementation and contract design on enterprise innovation investment in the context of the recent booming development of ESOP in China. First, we use a treatment effect model to examine the impact of ESOP implementation on innovation investment, taking firms that implement ESOPs as the treatment group and firms that do not implement ESOPs as the control group. Second, we use multivariate regression models to test the impact of ESOP contract design (including fund source, stock source, lockup period, duration, shareholding scale, executive subscription ratio, participation degree, and management mode) on innovation investment using the treatment group. The results indicate that the implementation of ESOP is helpful in increasing enterprise innovation investment, and the impact of ESOP on innovation investment varies significantly with the design of incentive contracts.
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