Employee Stock Ownership Plans Research Articles

Executive equity incentives, employee stock ownership plans, and enterprise performance: Empirical evidence based on environmental uncertainty

Taking China’s A-share listed companies from 2014 to 2021 as the research sample, this article verifies the differential impact of executive equity incentive and employee stock ownership plan on enterprise performance and examines the economic consequences of their implementation under the influence of environmental uncertainty, the nature of property rights, and the quality of external audit. The results show that 1) there are significant differences between executive equity incentive and employee stock ownership plan on enterprise performance. 2) The effect of executive equity incentive is more significant when the environmental uncertainty is low, while the effect of employee stock ownership plan is more significant when the environmental uncertainty is high. 3) The equity incentive of state-owned listed companies cannot significantly improve enterprise performance when the environmental uncertainty is high. 4) High-quality external audit can significantly improve the effect of equity incentive on enterprise performance, and the effect is more obvious when the environmental uncertainty is high. The research conclusion confirms the necessity of reasonably selecting equity incentive objects under the influence of environmental uncertainty and also provides a useful reference for optimizing the reform of equity incentive system of state-owned enterprises and perfecting the external audit system.

Bringing workers into ownership of platform companies

PurposeIn addition to increased regulation and platform co-operatives, this paper proposes a third option to address the problem posed by the labor-based platform (LBP) companies and companies' treatment of de facto employees as “independent contractors,” thus avoiding the usual employee benefits.Design/methodology/approachThe paper outlines the history and structure of Employee Stock Ownership Plans (ESOPs) as a mechanism to achieve partial worker ownership of companies.FindingsThe possibility of establishing ESOPs in the local subsidiaries of platform companies is outlined as the third option to reform LBPs.Practical implicationsWhether this option is available in the United States of America is not clear without new litigation or legislation since the existing USA ESOP is for “employees” and the problem is that the LBPs do not classify these platforms' full-time workers as “employees.” Hence, this third option may be mainly relevant to other countries for LBPs that are not already established.Originality/valueThe ESOP approach to changing LBPs is a new suggestion in addition to the usual approaches of increased public regulation and establishing new worker-owned platform co-operatives. The ESOP is a new tool in the hands of municipal and national governments to require in order for the LBPs to be able to operate.

Personality traits, ESOP attributions, and psychological ownership in the U.S. and South Korea

This study examines linkages from personality traits to employee attributions of employee stock ownership plans (ESOP) and to psychological ownership for the organization (POO) between the U.S. and South Korea. By analyzing survey data collected from 693 employees in two countries, we found that agreeableness, conscientiousness, extraversion, and openness to experience are positively related to POO directly as well as indirectly through commitment-focused ESOP attributions. Also, those mediational linkages are more pronounced among employees in South Korea, which is a collectivist society. Finally, our supplementary analyses confirmed these results by indicating the same pattern of results in the South Korean sample, but not in the U.S. sample. Our findings provide theoretical implications for diverse scholarships such as employee ownership, human resource attributions, and international human resource management.

Employee stock ownership and firm exit decisions: A cross-country analysis of rank-and-file employees

While multinational firms invest large amounts of money in employee stock ownership plans (ESOPs) to reduce turnover, there is little evidence regarding ESOPs' effectiveness in retaining rank-and-file employees and none on a global scale. Building on psychological ownership (PO) arguments, we predict that a rank-and-file employee's ESOP participation will be negatively associated with a firm exit decision and that this effect will be stronger in contextual settings that are more conducive to turnover. For our analysis, we used internal data from a large multinational firm covering 190,453 rank-and-file employees and approximately 650,000 employee years. We find that ESOP participation is associated with a lower likelihood of individual firm exit decisions. We also find this effect to be more pronounced in countries with favorable labor market conditions and lower uncertainty avoidance (UA). Additional tests support our argument that PO arising from ESOP participation is particularly important for rank-and-file employees, who often only invest small amounts. Overall, our study provides cross-country evidence regarding the retention effect of ESOP participation for rank-and-file employees.

Governance and culture within employee-owned companies

PurposeThe purpose of this paper is to examine the type of governance dominant within employee-owned companies established as an Employee Stock Ownership Plan (ESOPs) and to ascertain if governance follows the agency or stewardship theory of governance.Design/methodology/approachA sequential mixed method (Quantitative/Qualitative) research design was used with a convenience sample of employee-owned companies who were members of The ESOP Association (TEA). The Stewardship Climate Scale (SCS) was used as the quantitative instrument and structured interviews were used as the qualitative instrument.FindingsA majority (96%) of ESOPs participating in the study self-identified as stewardship governance, only 6 of the 154 companies (4%) self-identified as having agency governance.Research limitations/implicationsThere is a potential of self-report bias based on the use of convenience sampling which should be minimized based on the large number of participants. The study was not able to examine the relationship between stewardship and productivity.Originality/valueThis is the first large scale research study examining governance within employee-owned companies.

Warranting Further Discussion: Why the Use of Financing Warrants in ESOP Transactions Benefits American Workers

The leveraged Employee Stock Ownership Plan (ESOP) structure was created by US Congress to enable American workers to gain an equity interest in their companies without using their own funds. A critical component in the financing of leveraged ESOP transactions is a “warrant,” which enables corporate sponsors of ESOPs to access the financing necessary to facilitate purchases of company stock by ESOPs. Warrants also afford substantial benefits to ESOPs by providing downside risk for ESOP participants, freeing up cash for more productive uses than servicing interest on debt and aligning all corporate stakeholders' interests toward the common goal of increasing equity value. Recently, however, the US Department of Labor (DOL) has taken the position that warrants necessarily reduce the fair market value of a subject company's equity in an ESOP transaction. This position, which would discourage ESOP formation, is contrary to both the “fair market value” standard that governs ESOP transactions and the DOL's long-held position on this issue. By helping to clear misconceptions around the use of warrants in leveraged ESOP transactions, we hope to contribute to the continued proliferation of ESOP ownership, resulting in a broader-based participation in wealth creation among American workers.

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Nexus of Employee Stock Ownership with Cost of Capital: Evidence from KSE 100

This study investigates the effect of employee stock ownership on a company's cost of capital. It takes employees into great consideration and tries to overcome the agency conflict that exists within the company by adopting the employee's stock ownership plan. The panel data regression is run in order to find out the effect of employee stock ownership on a company’s cost of capital. This study hypothesizes that employee stock ownership will tend to reduce the company's cost of capital, due to a decrease in the cost of equity and debt cost of the corporations. From KSE 100 companies were chosen for our research analysis, the study employs a sample size of 209 companies. 11 years of data were collected (2010-2020), a panel data regression was run due to cross sectional and time-series data. The research showed that there is a substantial impact of employees’ stock ownership on the company's cost of capital, equity cost, and company's debt cost, and a negative relationship exists between the independent and dependent variables. Employee stock ownership increases the company's cost of debt, equity cost and capital cost decreases. The research involves employee stock ownership as the variable because there are few research works yet been conducted especially in Pakistan. It also contributes towards the bond found between ESO and agency cost that how it helps to minimize the cost and benefits to the company and shareholders. This study offers a contribution towards the literature concerning ESO and the company’s capital cost. It is useful for the companies, as this shows that adopting the employee's stock ownership plan reduces the company’s capital cost, cost of debt, and equity as a whole, and most importantly the principal-agent conflict is minimized. The financial companies are fully ignored which may represent different results and may vary according to the sectors as well. The given effect can also be checked by taking stock prices as the dependent variable.

Using ESOPs to Democratize Labor-Based Platforms

This paper explores a new strategy to address the problem of “gig-workers” in labor-based platform companies. The two current strategies are (1) regulations (e.g., requiring platforms to recognized workers as employees) or (2) creating new platform cooperatives to compete with the established platforms. The authors propose a third complementary approach, which is democratizing and adapting the Employee Stock Ownership Plan to gain co-ownership in the local subsidiaries of the labor-based platforms (LBP). This option puts a new tool in the hands of the municipal and national regulatory authorities.

Do Employee Stock Ownership Plans Affect Corporate Social Responsibility? Evidence from China.

Few studies have discussed the relationship between employee stock ownership plans (ESOPs) and corporate social responsibility (CSR). Using a sample of 895 A-share public firms in China, this research examines the effects of ESOPs on CSR, and the moderating effects of wedge structure and firm size on this relationship. This research mainly used the OLS model to test the research hypotheses, and all regressions were performed in Stata15. The results show that the ESOPs of Chinese public firms provide external economic incentives and internal psychological incentives for employees, increase their motivation to engage in CSR activities, and ultimately contribute to CSR. At the same time, this research finds that this relationship is stronger for firms without wedge structure and small firms. This research provides insights for understanding the relationship between ESOPs and CSR and has important managerial implications for firms to pay attention to the interests of employees to achieve sustainable development.

Employee Incentive ESOPs: An Equity Tool to Promote Engagement and Performance

Employee stock ownership plans (ESOPs) are experiencing renewed interest in America. In recent years, new ESOP formation was largely driven by the aging of the Baby Boomer generation (widely defined as those born between 1946 and 1964), and their desire to liquify their ownership in closely held businesses while rewarding their employees. There are other new forces driving this trend—the quest for equitable solutions for the growing divide between have and have-nots, the need for employers to retain and reward employees in a competitive talent market, and succession planning. In this article, I will discuss how an Employee Incentive ESOP can be used to promote performance and engagement in a broad-based manner.

The Impact of Employee Stock Ownership Plan on the Cost of Equity Capital: Evidence from China

Due to the immaturity of bond market and the defects of internal governance structure, Chinese-listed companies have a strong preference for equity financing. How to reduce the cost of equity capital is particularly important for Chinese-listed companies. As an equity incentive system, employee stock ownership plan (ESOP) can reduce the agency conflicts among shareholders, executives, and employees to some extent. These reduced conflicts will, in an efficient capital market, be reflected in a lower cost of equity capital. This paper investigates whether the implementation of ESOP in a new era in China affects the cost of equity capital and further explores whether the impact of ESOP on the cost of equity capital is affected by the ownership nature, the firm size, and the contract design of ESOP. The results show that the implementation of ESOP reduces the cost of equity capital of enterprises. Compared with state-owned enterprises and large enterprises, the implementation of ESOP is more likely to reduce the cost of equity capital in non-state-owned enterprises and small enterprises. Furthermore, the reduction effect of ESOP on the cost of equity capital is influenced by the contract design of ESOP. This study not only enriches the literature on the relationship between employee stock ownership and the cost of equity capital but also provides a new idea for listed companies to reduce the cost of equity financing.

Can employee stock ownership plans reduce corporate financialization? Evidence from China

Using a sample of China’s A-share listed companies from 2012 to 2019, this paper studies the impact of employee stock ownership plans (ESOPs) on corporate financialization. We find that the implementation of ESOPs has a significant inhibitory effect on corporate financialization, and a series of robustness checks indicate that the conclusion is valid. The mechanism tests show that ESOPs decrease corporate financialization by reducing management agency costs and improving internal control. Heterogeneity analyses indicate that ESOPs in firms with higher financing constraints, a lower external audit quality, and higher proportions of executive shareholdings and self-funded employee equity have a much stronger decreasing effect on corporate financialization.

How do Postdoctoral Workstations Affect Human Capital Upgrading in Firms

Human resources are an essential foundation for long-term economic growth and social progress in developing economies. The question of how to deepen the reform of the talent cultivating system and stimulate the strategic value of human resources has always been one of the heated issues that the government and entrepreneurs pay attention to. However, previous literature focuses on investigating the direct role of individual education investment or macro-policy guidance but overlooks the indirect spillover effect caused by talent accumulation inside the organization. Therefore, there is a literature gap on talent accumulation at the micro-organizational level, leading it difficult to reveal the mechanism of human capital in enhancing the core competitiveness of firms. Given this, this study takes the endogenous growth theory as the core clue, integrating the perspectives of human capital externality and capital-skill complementary, and systematically analyzing the impact of postdoctoral workstations on the human capital in firms.The research data are compiled from two sources. On the one hand, we start our sample construction with a comprehensive list of Chinese A-share listed firms from 2011 to 2019. Firm-level labor employment structure data are retrieved from the WIND Stock database. On the other hand, to form a list of firms that are allowed for setting up a postdoctoral workstation, we manually collect information on the postdoctoral program from the website of the Ministry of Human Resources and Social Security. After merging with the above databases, our initial sample consists of an unbalanced panel of 12,134 firm-year observations. Then, we construct a PSM sample with 8,292 observations from 1,438 listed firms for the DID estimation.There are four main findings in this study. First, the postdoctoral workstation significantly promotes the upgrading of human capital in firms, which boosts the relative employment of skilled labor to rise by about 5.7% on average. Second, the channel test shows that the establishment of postdoctoral workstations has a direct impact on both the increment and stock of human capital and accomplishes the optimization level of human resources by promoting the “structural aggregation” and “learning-by-doing” effects on human capital. In addition to these direct effects, postdoctoral workstations also improve the quality of independent research and development in firms, and thus indirectly activate the skilled labor to play the role of “innovation carrier” to meet the needs of industrial upgrading. Third, further analysis indicates that employee stock ownership plans, urban vocational education, and industry competition will make the main findings more pronounced. Fourth, the postdoctoral workstation has a spillover effect, and its human capital upgrading effect can significantly promote production efficiency, financial profitability, and firm value in capital markets.This study contributes to the existing literature in several ways. First, it provides an integrated insight into the increment and stock of human capital to investigate the underlying mechanism of how postdoctoral workstations affect human capital in firms. Hence, it expands the research perspective of the driving factors of human capital upgrading at the micro-organizational level. Second, it links highly-educated talents with highly-skilled talents together, revealing the unique role of postdoctoral workstations in promoting the value spillover of skilled labor, which is a response to the academic community’s call for research on the synergistic aggregation effect of human capital at the organizational level and its strategic value. Third, as this study also examines the moderating effect of heterogeneity among different firms, cities, and industries, the conclusion can help entrepreneurs understand how to develop human resources efficiently and shed additional light on policy-making.

Employee Stock Ownership Plans for Tobacco Concept Stock Listed Companies and Corporate Innovation Investment

In this study, we discussed the influence of employee stock ownership plan (ESOP) on innovation investment in Chinese tobacco concept stock listed companies. Methods: we firstly performed empirical research method to investigate the differences in innovation investment between companies implementing ESOPs and companies not implementing ESOPs by using the panel data of tobacco concept stock listed companies from 2014 to 2020. Secondly, we further performed case study method to test the changes in innovation investment of tobacco concept stock listed companies before and after implementing ESOPs by choosing Hengfeng Paper as a research subject. Results: In tobacco concept stock listed companies, companies implementing ESOPs had higher level of innovation investment than companies not implementing ESOPs. After implementing the ESOP, Hengfeng Paper significantly increased its investment in innovation. Conclusion: In tobacco concept stock listed companies, the implementation of ESOP with ordinary employees as the main incentive object helps to promote innovation investment.

Impact of Employee Stock Ownership Plans on Productivity in Video Game Companies

The article deals with the importance of ESOPs (employee stock option plan) for the motivation of key employees of companies producing and publishing computer games. The conducted literature review led to the identification of a motivation model that explains how ESOPs can affect the motivation of employees in this industry. An analysis of the available studies on the importance of ESOPs for employee motivation revealed the existence of at least one key success factor of ESOPs—psychological ownership. The empirical study includes an ESOP analysis of five computer game companies listed on the Warsaw Stock Exchange in terms of changes in the dynamics of employee productivity caused by an ESOP. One of the most important discoveries is the relationship between productivity and the structure of the ESOP, in particular the percentage of company shares that were offered to its participants.

Drivers and barriers for employee ownership – why is the United States in a positive circle while Denmark is not?

PurposeDrivers and barriers for employee ownership vary between countries because of differences in Politics, Institutions and the Economy (PIE). By analyzing this variation, the purpose of this study is to answer why employee ownership has developed fast in the United States and not in Denmark.Design/methodology/approachThe drivers and barriers for employee ownership are identified from the scientific literature, and the main societal dynamics are identified through the PIE model covering the dynamics between politics, institutional change and the economy. Politics focuses on different social groups influencing the development of institutions driving or hindering employee ownership in the economy.FindingsUnited States has followed a self-enforcing circle with broad political support of “shared capitalism,” including the employee stock ownership plan (ESOP) type of employee ownership. In Denmark, the labor movement rejected worker cooperatives as a main strategy and focused on building up the welfare state. Center-right parties favored employee stocks, but the institutional framework never overcame the barriers for employee ownership.Originality/valueThis is the first study to perform an analysis of politics, institutional change and economic development to explain drivers and barriers for employee ownership and to make a comparison between the development of employee ownership in the United States and Denmark.

ESOP and Corporate Sustainable Growth

The Employee Stock Ownership Plan (ESOP) is a long-term corporate welfare policy that allows employees to share the profits and growth benefits of the enterprise by owning the ordinary share of the enterprise. It has always been a research hotspot at home and abroad. Sustainable growth refers to the healthy and sustained growth of enterprises. ESOP has been re-implemented in China since 2014. Using dual fixed effects model, this paper empirically analyzes 6940 observations of Chinese listed companies from 2014 to 2018. We study whether ESOP can improve the sustainable growth rate of enterprises by allowing employees to hold equity, linking their personal interests to the interests of enterprises, and thus playing an incentive and supervisory role to effectively reduce enterprise agency costs. In the research process, we find that the data can help us objectively analyze the economic management problems of enterprises. However, when using the data for analysis, the correlation coefficient and significance should be analyzed together.

Problems and Suggestions of Employee Stock Ownership Plan of Jiai Technology

This article elaborates on the implementation of Jiai Technology’s employee stock ownership plan from the aspects of the issuance object, the source of funds and stocks, the price of the underlying stock, and the management model. Evaluate the implementation effect of the employee stock ownership plan through three aspects: solvency, market valuation and R&D capabilities, and then found that the employee stock ownership plan has narrow incentive targets, too low employee shareholding ratio, lack of performance appraisal conditions and other problems, and put forward targeted suggestions.

Employee Stock Ownership Plans and Corporate Environmental Engagement

This study examines the impact of non-executive employee stock ownership plans (ESOPs) on corporate environmental engagement. We show that granting ESOPs to non-executive employees promotes greater corporate environmental engagement in terms of environmental protection expenditures, environmental information disclosure, and environmental, social, and governance (ESG) ratings. We adopt the two-way fixed-effects model, the propensity score matching (PSM) method, and the instrumental variable approach to alleviate endogeneity concerns. The positive effect of ESOPs is mainly attributable to high-intensity, broad-based, and long-term plans where the incentive effect of ESOPs is sufficiently large to offset the free-rider effect. Furthermore, our findings are particularly pronounced in companies with more intense labor market competition, companies with greater media exposure, and companies in heavy-polluting industries. Overall, this study reveals new evidence of the incentive effect of ESOPs on corporate environmental engagement.