Employee stock ownership plans and within-firm income inequality: evidence from China

Purpose Drawing on bargaining power and the inequality aversion perspective, this study aims to probe employees’ influence on addressing income inequality between top executives and nonexecutive employees. Meanwhile, it examines the moderating role of employee-related factors and plan attributes. Design/methodology/approach This study uses a staggered difference-in-differences design with a propensity scoring match approach and verification of the parallel trend assumption to test the hypotheses. Findings The results support the hypothesis that employee stock ownership plans (ESOPs) significantly reduce within-firm income inequality. The negative effect is amplified by both the presence of trade unions and the unemployment rate at the regional level, as well as the duration of the lock-in period and the scale of participants within the stock ownership plan. Practical implications This study has implications for income inequality research and ESOP design and provides theoretical support for policymakers and corporate governance. Originality/value This study contributes to the literature on income inequality by examining the implementation of ESOPs from the employee perspective. Furthermore, it extends the current literature by investigating the strengthening effects of regional factors and ESOP attributes on the relationship between ESOPs and income inequality. The conclusions provide new empirical evidence to promote the effective implementation of ESOPs by combining internal and external factors.