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Broad-Based Employee Stock Ownership: Motives and Outcomes


  • E. HAN KIM,


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    • E. Han Kim is at the Ross School of Business, University of Michigan, and Paige Ouimet is at Kenan-Flagler Business School, University of North Carolina. Previous versions of this paper were circulated under the titles “Employee Capitalism or Corporate Socialism: Broad-Based Employee Stock Ownership” and “Employee Stock Ownership Plans: Employee Compensation and Firm Value.” We are grateful for helpful comments and suggestions by Campbell Harvey (the Editor), an anonymous Associate Editor, two anonymous referees, Sreedhar Bharath, Joseph Blasi, Amy Dittmar, Charles Hadlock, Diana Knyazeva, Doug Kruse, Francine Lafontaine, Margaret Levenstein, Daniel Paravisini, Joel Shapiro, Clemens Sialm, and Jagadeesh Sivadasan, seminar participants at INSEAD, North Carolina State University, University of Hawaii, University of Michigan, University of Oxford, the U.S. Bureau of Census, and Washington University at St. Louis, and participants at the 2010 American Finance Association Annual Meetings, 2009 Conference on Financial Economics and Accounting, Labour and Finance Conference at University of Oxford, Madrid Conference on Understanding Corporate Governance, Census Research Data Center Annual Conference, and International Conference on Human Resource Management in the Banking Industry. We thank Josh Rauh for generously sharing his employee ownership data and acknowledge financial support from Mitsui Life Financial Research Center at the Ross School of Business and the Beyster Institute. The research was conducted while the authors were Special Sworn Status researchers of the U.S. Census Bureau at the University of Michigan and Triangle Census Research Data Center. We thank Clint Carter and Bert Grider for their diligent assistance with the data and clearance requests. Any opinions and conclusions expressed herein are those of the author(s) and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed.


Firms initiating broad-based employee share ownership plans often claim employee stock ownership plans (ESOPs) increase productivity by improving employee incentives. Do they? Small ESOPs comprising less than 5% of shares, granted by firms with moderate employee size, increase the economic pie, benefiting both employees and shareholders. The effects are weaker when there are too many employees to mitigate free-riding. Although some large ESOPs increase productivity and employee compensation, the average impacts are small because they are often implemented for nonincentive purposes such as conserving cash by substituting wages with employee shares or forming a worker-management alliance to thwart takeover bids.