The resumption of employee stock ownership plans (ESOP) is an important institutional arrangement for China’s capital market to help enterprises maintain their human resource endowment and establish a long-term incentive mechanism. This paper takes Shanghai and Shenzhen A-share listed companies from 2014 to 2018 as samples to explore the impact of the implementation of employee stock ownership plans on enterprises’ inefficient investments. The results show that ESOP does not achieve the ideal effect of inhibiting inefficient investment. On the contrary, ESOP exacerbates the over-investment of enterprises. ESOP has no significant effect on under-investment. The positive relationship between ESOP and inefficient investment is more significant in the regions with less developed marketization. Further analysis reveals that the subscription ratio of executives can significantly inhibit the over-investment of enterprises under the method of directional assignment by major shareholders and shareholder gifts. The conclusion of the study confirms that the long-term incentive effect of China’s employee stock ownership plan is insufficient, which provides theoretical support for the regulators to improve the relevant system and also serves as a warning for investors’ decision-making.