Levels of Employee Share Ownership and the Performance of Listed Companies in Europe
| Date | 01 June 2017 |
| Author | Susanne Schrader,Ansgar Richter |
| DOI | http://doi.org/10.1111/bjir.12169 |
| Published date | 01 June 2017 |
British Journal of Industrial Relations doi: 10.1111/bjir.12169
55:2 June 2017 0007–1080 pp. 396–420
Levels of Employee Share Ownership
and the Performance of Listed
Companies in Europe
Ansgar Richter and Susanne Schrader
Abstract
We investigate the eects of employee share ownership (ESO) on three
alternative measures of firm performance in a panel of 1,115 companies from
the five largest European economies. The results show that firms with ESO
enjoy significantly higher levelsof capital market performance and of accounting
performance than firms without ESO; however, the marginal eects of ESO
are declining with increasing ESO levels. ESO does not have a clear eect on
productivity. These findings hold for all countries except Spain. Variations in
ESO levels within firms over time exert few performance eects.
1. Introduction
Giving employees an ownership stake in their companies is widely believed
to be beneficial not only for the employees themselves, but also for the firms
concerned (Gates 1998; Rosen et al. 2005). According to economic theory,
these beneficial eects are rooted in the interest alignment between employees
and other shareholders, and the resulting reduction in principal–agent
problems (French 1987). However, economists also caution that employee
share ownership (ESO) may have undesirable consequences on the firm level
such as the costs associated with adopting and administering ESO plans
(Jones and Kato 1995).
Empirical research has largely, but not unequivocally, attested to the idea
that ESO is good for firm performance (Freeman 2007; Freeman et al.
2010). In an analysis of French firms, Guedri and Hollandts (2008) find an
inverted U-shaped eect of employee ownership on accounting performance,
but no significant eect on capital market performance. Their study raises
Ansgar Richter is at the Management School, University of Liverpool. Susanne Schrader is at
The Boston Consulting Group, Cologne.
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2016 John Wiley& Sons Ltd/London School of Economics. Published by John Wiley & Sons Ltd,
9600 Garsington Road,Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
Levels of Employee Share Ownership 397
three issues that we seek to address in our article. First, we investigate
whether the potential eects of ESO hold for dierent dimensions of firm
performance, namely capital market performance, accounting performance
and productivity. Distinguishing between alternative performance measures
is important as these measures represent the performance expectations of
dierent stakeholder groups (Richard etal. 2009). Second, we provide a more
finely grained analysis of the ESO–performance relationship, by using a spline
regression approach that makes less restrictive assumptions regarding the
nature of the relationship than does the quadratic regression methodology
employed by Guedri and Hollandts (2008). Third, we use a large-scale
sample of companies from the five largest European economies, in order to
assess whether the presumed performance eects of ESO are contingent on
institutional and socioeconomic conditions in the countries concerned. We
argue that dierences in these conditions across countries not only aect the
level of ESO, but thatthey also moderate the strength and shape of the ESO–
firm performance relationship.
2. Literatu re review
ESO refers to situations in which a broad cross section of employees
holds a portion of the ownership rights in the firm employing them. This
characteristic distinguishes ESO from other ownership forms, which involve
only a limited fraction of the workforce, such as partnerships. Employee
participation in ownership is often viewed as normatively preferable to
exclusive control of companies by outside shareholders for such reasons as
equality or autonomy (Dow 2003). Nevertheless, absolute ESO levels in many
market-based economies are low (Boatright 2004). However, the importance
of ESO has increased in recent decades for a variety of reasons, for example,
the increased importance of (investments in) human capital in knowledge-
intensive firms (e.g. Robinson and Zhang 2005).
The economics literature has analysed the eects of ESO primarily
in terms of a device for alleviating principal–agent problems between
workers and shareholders (Holmstrom and Milgrom 1991). Principal–agent
theory suggests that the interests of shareholders (principals) and employees
(agents) may dier (e.g. Conte and Svejnar 1988; Sappington 1991). Under
conditions of information asymmetry and imperfect monitoring, agents may
maximize their own utility at the expense of principals (Jensen and Meckling
1976).
Economic theory thus suggests that ESO may benefit firm performance by
internalizing conflicts of interest between workers and owners (French 1987).
Employees who hold a stake in the ownership rights are entitled to sharing
in the returns of the firm for which they work (Richter and Schr¨
oder 2008).
This right should increase employee motivation to exert eort, to cooperate
with management and to stay with the firm. These arguments resonate with
behaviouralperspectives, suggesting that employee participationin ownership
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2016 John Wiley& Sons Ltd/London School of Economics.
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