This article uses data from A-share listed firms to examine the impact of employee stock ownership plan (ESOP) on corporate fraud. The results show that the ESOP can reduce the probability and frequency of corporate fraud. The mechanism test suggests that the ESOP improves the internal governance efficiency through promoting the voting of minority shareholders and appointing directors in the board. Meanwhile, The ESOP promotes the regulatory function of independent directors and increases the following of analysts through employees’ information transfer. Furthermore, distinguishing the types of corporate fraud, the ESOP mainly reduces information disclosure fraud and minor fraud. Distinguishing the types of ESOP, the plans with higher scale of employee stock ownership, longer lock-up period, higher discount, no leverage, no guarantee or reassurance and no performance conditions inhibit corporate fraud more significantly. The economic consequences analysis shows that the monitoring of corporate fraud by ESOP can reduce the stock price crash risk. The conclusion verifies the monitory role of ESOP from the perspective of corporate fraud and provides new empirical evidence for the economic consequences of ESOP.