Employee Stock Ownership Plans and the Dynamic Adjustment of Corporate Capital Structure: Evidence from China

This paper utilizes a partial adjustment model (PAM) to empirically examine how Employee Stock Ownership Plans (ESOPs) affect the dynamic adjustment of corporate leverage. The results indicate that ESOPs significantly accelerate the speed of adjustment toward the target capital structure for both upward- and downward-adjusting firms. Mechanism analysis reveals that the resource effect dominates during upward adjustments, whereas the governance effect is more influential during downward adjustments. Furthermore, this paper confirms that ESOP-driven adjustments primarily rely on debt financing rather than equity financing. Economic consequence analysis shows that ESOP implementation enhances firm value by optimizing capital structure. Heterogeneity analysis demonstrates that a positive work environment and higher levels of employee human capital strengthen the contribution of ESOPs to dynamic capital structure adjustment. These findings enrich research on the economic consequences of ESOPs and the determinants of capital structure adjustment, providing empirical evidence for firms seeking to “stabilize leverage and promote development.”