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

In the context of corporate sustainability, studies on the role that managerial incentives play in improving corporate environmental performance have so far focused on incentives provided either to executives and senior managers or to plant managers. However, few studies have considered the role of employee incentives. Drawing on the opportunity provided by the China Securities Regulatory Commission in restarting employee stock ownership plans (ESOPs) in 2014, this paper investigates the impact of employee incentives on environmental performance of high-polluting enterprises. The results indicate that ESOPs are significantly positively related to corporate environmental performance. The positive effect is particularly pronounced in subsamples with weak free-riding problems, high human capital quality, and non-state-owned enterprises (non-SOEs). Further analysis reveals that ESOPs improve corporate environmental performance through enhancing productivity and green technology. Overall, this paper reveals the micro-mechanisms behind the actual effects of employee incentives on corporate environmental management, thus providing timely implications for high-polluting enterprises to improve environmental performance.