Employee shareholding plans and corporate environmental misconduct: an inverted U-shaped relationship in Chinese listed firms

While prior studies generally assume a linear, positive effect of employee shareholding plans (ESPs) on environmentally responsible behavior, their non-linear influence on environmental misconduct (EM) remains unexplored. Using a sample of Chinese listed firms that implemented ESPs from 2014 to 2024, this study finds an inverted U-shaped relationship between employee shareholding and corporate EM. Mechanism analyses indicate this non-linear effect operates through two channels: managerial environmental attention and corporate green investment. Heterogeneity tests reveal that the relationship is more pronounced in regions with stringent environmental regulation and developed green finance, in industries with high pollution intensity, capital intensity, and intense market competition, and in firms with weaker internal controls. Extended analyses show a similar inverted U-shaped pattern for operational misconduct, but not for tax, information disclosure, or securities trading misconduct. Furthermore, ESPs and executive equity incentive plans (EEIPs) exhibit a complementary relationship in shaping EM. Overall, this study reveals a significant non-linear governance effect of employee ownership on corporate environmental wrongdoing.