Transformations  in
Business & Economics

THE OPTIMAL PROPORTION OF EMPLOYEE STOCK IN THE DUOPOLY COMPETITION
Junlong Chen, Jiali Liu, Feifan Mo, Liuchang Xu

ABSTRACT. This paper studies the optimal proportion of employee stock in duopoly markets, and discloses how the nature of enterprise ownership, stock efficiency and wage level affect the optimal proportion of employee stock. Three duopoly markets are investigated: two private enterprises, two state-owned enterprises (SOEs), and a private enterprise and an SOE. The competitions between the two enterprises are taken as a two-stage sequential game and studied through backward induction. The results reveal that the enterprise ownership nature has a directly bearing on the optimal proportion of employee stock and determines whether to implement the employee stock ownership plan (ESOP) and the specific level of the plan. The optimal proportion of employee stock is positively correlated with its contribution to enterprise efficiency in most cases. The effect of wage level on the optimal proportion of employee stock depend on the ownership nature of the ESOP implementer and enterprises, and stock efficiency.

KEYWORDS:  employee stock ownership plan, optimal proportion of employee stock, duopoly, stock efficiency, wage level.

JEL classification:  L13, M21.