Employee Stock Ownership Plans (ESOPs), a prevalent form of employee ownership, align the interests of shareholders and labors. This study exploits the gradual adoption of ESOPs in China since 2014 as a natural experiment to investigate their impact on corporate cash holdings. Applying staggered difference-in-differences estimation with a sample of 3,618 listed firms in China during 2010-2022, we observe a significant reduction in cash holdings upon ESOP adoption, a reduction that persists for an additional two years. Channel analyses reveal that ESOPs achieve this cash reduction through enhanced owner-employees efforts, improved internal governance, and better access to external financing. Further examination indicates that firms hold less cash when granting more shares to rank-and-file employees or when employees retain these shares for an extended period before selling. Our extended results suggest that firms adopting ESOPs adjust their cash holdings more quickly toward optimal levels, and their market value of cash increases post-adoption of ESOPs. In summary, our study underscores the significant impact of ESOP adoption and design on corporate cash holdings, aligning with the perspective that employee ownership facilitates interest alignment that mitigates precautionary and agency-based motives for cash holdings while enhancing external financing opportunities.