Zero-cost employee stock ownership incentive and corporate innovation

This study explores the effect of zero-cost employee stock ownership plans (zero-cost ESOPs) on corporate innovation. Based on staggered Difference-in-Differences (DID) method, the empirical results demonstrate that zero-cost ESOPs significantly promote corporate innovation, and the result is validated by a series of robustness and endogeneity tests. Mechanism analysis reveals that zero-cost ESOPs enhance corporate innovation by improving the human capital structure through attracting more highly educated and technically skilled employees, which widens the salary gap. Furthermore, the positive effect is more pronounced for firms with lower average salaries, industry competition, and executive shareholding. Most importantly, compared with traditional ESOPs, zero-cost ESOPs exhibit a stronger positive influence on corporate innovation, particularly in fostering independent innovation rather than collaborative innovation with external firms.