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    Kiss the Baby for the Nurse’s Sake? - Guaranteeing Employees’ Stock Purchase against Loss Program

    Access Status
    Fulltext not available
    Authors
    Xiao, MingFang
    Cao, June
    Chiang, Y.
    Date
    2022
    Type
    Journal Article
    
    Metadata
    Show full item record
    Citation
    Cao, J. and Xiao, M. and Chiang, Y. 2022. Kiss the Baby for the Nurse’s Sake? - Guaranteeing Employees’ Stock Purchase against Loss Program. International Review of Financial Analysis. 81: Article No. 102119.
    Source Title
    International Review of Financial Analysis
    Additional URLs
    https://doi.org/10.1016/j.irfa.2022.102119
    ISSN
    1057-5219
    Faculty
    Faculty of Business and Law
    School
    School of Accounting, Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/88210
    Collection
    • Curtin Research Publications
    Abstract

    This paper investigates the unique and interesting phenomenon of the Guaranteed Employees Stock Purchase against Loss Program (GESPLP) that Chinese companies have initiated in recent years. The GESPLP encourages employees to buy shares and ensures them against losses for 12 months. We comprehensively investigate the direct reason, root reason, motivation, and consequences of this program. Based on manually collected data from all firms issued the GESPLP, we provide convincing evidence that companies with lower stock returns and higher stock pledges are more likely to initiate a GESPLP. The market reaction to the announcement of a GESPLP is positive in the short run. However, stock prices gradually revert to their pre-GESPLP level. Finally, our findings support the conjecture that the GESPLP is used to relieve the pressure of margin calls on corporate insiders' stock pledging in the short term. In a relatively long run, we observe the GESPLP indeed helps controlling shareholders reduce pledging level.

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