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Employee stock ownership plan and stock price crash risk

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  • Yan Li

    (Renmin University of China)

  • Bao Sun

    (Renmin University of China)

  • Shangyao Yu

    (Beijing Technology and Business University)

Abstract

This paper examines whether the announcement of an employee stock ownership plan (ESOP) affects stock price crash risk and the mechanism by which the ESOP may influence crash risk, using a sample of Chinese A-share firms from the period 2014 to 2017. We provide evidence that an ESOP announcement is significantly and negatively related to a firm’s stock price crash risk. An ESOP announcement sends positive signals to the market that insiders are optimistic about a firm’s future value, which helps enhance investor confidence, resist the pressure for a fire sale caused by negative information disclosure, and reduce stock price crash risk. Further research shows that larger-scale, lower-priced and non-leveraged ESOPs are more helpful in reducing crash risk. This paper sheds lights on the impact of ESOPs in a volatile market environment. It also contributes to firms’ implementation of ESOPs and the development of the legal system in capital markets.

Suggested Citation

  • Yan Li & Bao Sun & Shangyao Yu, 2019. "Employee stock ownership plan and stock price crash risk," Frontiers of Business Research in China, Springer, vol. 13(1), pages 1-33, December.
    • Handle: RePEc:spr:fobric:v:13:y:2019:i:1:d:10.1186_s11782-019-0061-2
    DOI: 10.1186/s11782-019-0061-2
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    5. Mahdi Moradi & Andrea Appolloni & Grzegorz Zimon & Hossein Tarighi & Maede Kamali, 2021. "Macroeconomic Factors and Stock Price Crash Risk: Do Managers Withhold Bad News in the Crisis-Ridden Iran Market?," Sustainability, MDPI, vol. 13(7), pages 1-16, March.
    6. Fu Cheng & Shanshan Ji & Yucheng Chen, 2023. "The Contract Design of Employee Stock Ownership Plan and Enterprise Innovation Investment: Evidence from China," Sustainability, MDPI, vol. 15(3), pages 1-29, February.
    7. Shi, Jinyan & Liu, Xu & Li, Yanxi & Yu, Conghui & Han, Yushan, 2022. "Does supply chain network centrality affect stock price crash risk? Evidence from Chinese listed manufacturing companies," International Review of Financial Analysis, Elsevier, vol. 80(C).
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