Broad-Based Financial Participation Plans and Their Impact on Financial Performance: Evidence from a Dutch Longitudinal Panel

Abstract

This study investigates the relationship between broad-based financial participation plans (which target all employees) and financial performance, using a panel dataset of listed, companies (excluding financial institutions) during the period 1992–2009, comprising 2,153 observations. We make a distinction between broad-based profit sharing, share and stock option plans. The panel data allow us to take into account time-lag effects, as profit sharing is usually said to have short-term effects, while share plans and stock options and are intended to have longer term impact. Our results show that broad-based profit sharing and share plans and combinations of these plans are positively related with financial performance when compared with companies without such plans. However, the results are inconsistent for the associations between broad-based stock option plans and financial performance in the longer term. These findings extend the literature on financial participation plans by including different forms of broad-based financial participation and showing that the different forms affect companies’ financial performance differently. Our results also support earlier reports in the literature, which suggest that there are important synergies between broad-based profit-sharing and share plans, in terms of a better combination of intrinsic ownership behaviors and extrinsic motivation of employees as well as a stronger focus on collective interest and performance when compared with single plans.