Non-executive employee stock ownership plans and corporate innovation efficiency: Evidence from China

•Ratio of shares held by non-executive employees is positive towards innovation efficiency.•Only long duration of ESOPs is positively related to innovation efficiency.•R&D personnel and education of employees strengthen the link.•Remuneration gap between executives and employees weakens the link. We establish a positive link between non-executive employee stock ownership plans (ESOPs) and corporate innovation efficiency through a propriety dataset of listed firms on the Shanghai and Shenzhen Stock Exchanges. Our findings suggest that the ratio of shares held by non-executive employees is positive towards corporate innovation efficiency. In addition, only the long duration of ESOPs is positively related to innovation efficiency. The positive link is more pronounced among firms with more research and development (R&D) personnel, better-educated employees, and a smaller remuneration gap between executives and non-executive employees. Our findings are robust after mitigating endogeneity issues.