Abstract
Based on a sample of Employee Stock Ownership Plans announced by Chinese listed companies, this paper explores whether managers learn from the market in the decision relating to the termination of the Employee Stock Ownership Plan. Results show that: Managers listen to the market and terminate Employee Stock Ownership Plans following market expectations. The more negative the market reaction to the initial announcement, the more likely management is to terminate it, and this effect is more pronounced for firms with non-overconfident managers and in lower market share rank. Moreover, the initial announcement return is reversed by the termination announcement return. When managers follow market expectations to terminate the Employee Stock Ownership Plan with a negative market reaction to the initial announcement, the market reaction to the termination is more positive. Further research finds that compared with the terminations of Employee Stock Ownership Plans that are not consistent with market expectations, the terminations that follow market expectations improve business performance more significantly.