Do Employee Stock Ownership Plans Affect Corporate Social Responsibility? Evidence from China

Abstract

Few studies have discussed the relationship between employee stock ownership plans (ESOPs) and corporate social responsibility (CSR). Using a sample of 895 A-share public firms in China, this research examines the effects of ESOPs on CSR, and the moderating effects of wedge structure and firm size on this relationship. This research mainly used the OLS model to test the research hypotheses, and all regressions were performed in Stata15. The results show that the ESOPs of Chinese public firms provide external economic incentives and internal psychological incentives for employees, increase their motivation to engage in CSR activities, and ultimately contribute to CSR. At the same time, this research finds that this relationship is stronger for firms without wedge structure and small firms. This research provides insights for understanding the relationship between ESOPs and CSR and has important managerial implications for firms to pay attention to the interests of employees to achieve sustainable development.

Employee Stock Ownership Plans and Corporate Environmental Performance: Evidence from China

“…During this period, with the approval of the China Securities Regulatory Commission, state-owned enterprises could issue some equity to internal employees to improve operational efficiency. However, due to imperfect implementation details and a lack of effective supervision, the ESOPs not only failed to improve corporate performance [ 26 ], but also caused serious problems such as the transmission of benefits and the loss of state-owned assets [ 22 ]. For these reasons, the China Securities Regulatory Commission terminated the internal employee stock ownership of listed enterprises in December 1998.…”

“…Chang et al (2015) [ 18 ] provided empirical evidence that non-executive employee stock options have a positive impact on corporate innovation. Zhou et al (2022) [ 22 ] found that ESOPs improve corporate CSR performance by providing employees with external economic incentives and internal psychological incentives.…”

“…First, before the implementation of the ESOPs, it was difficult for employees to enjoy the benefits brought by improvements in corporate environmental performance, such as the direct economic benefits brought by rising stock prices and the indirect economic benefits brought by improved corporate green reputations [ 22 ]. On the contrary, they had to bear more risks caused by failures of environmental strategy, such as layoffs due to a decline in performance.…”

“…As a result, the mismatch of risk–returns may have resulted in employees slacking off, making only limited effort equivalent to their fixed compensation rather than exerting extra effort [ 20 ]. After the implementation of the ESOPs, employees were transformed from migrant workers receiving fixed salaries to owners enjoying corporate ownership and surplus income sharing rights, which directly enhanced employees’ satisfaction and dedication, stimulated their sense of ownership [ 22 ], and encouraged them to work harder and actively participate in corporate environmental management activities, such as actively identifying and eliminating processes that generate waste and harmful effluents [ 13 ], identifying and correcting incongruities in production processes and green innovative designs, and proposing insightful green innovative solutions [ 4 ]. Increased efforts by employees can help enhance the productivity and green innovation efficiency of enterprises [ 18 , 21 ], thus improving corporate environmental performance.…”

“…Enterprises also use ESOPs to strengthen worker–management alliances to counter hostile takeovers [ 19 , 20 ]. However, ESOPs in China were mainly introduced as employee incentive programs [ 21 , 22 ]. China’s ESOPs are not tax deductible and they are not mixed with or altered by the effects of tax legislation or ESOPs pension programs [ 21 ].…”