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The Role of ESOPs in Takeover Contests

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Author Info
 Chaplinsky, Susan
Niehaus, Greg
Abstract

This article examines both the shareholder wealth effects of employee stock ownership plans (ESOPs) announced by firms subject to takeover pressure and the takeover incidence of targets with and without ESOPs. Although we do not find that defensive ESOPs significantly reduce shareholder wealth on average, we identify two factors - the change in managerial and employee ownership due to the ESOP and the simultaneous announcement of other defensive tactics - that are associated with negative stock price reactions. We find that ESOPs are strong deterrents to takeover. ESOP targets that are acquired earn higher returns than targets without ESOPs, but the difference is not statistically significant. Copyright 1994 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 49 (1994)
Issue (Month): 4 (September)
Pages: 1451-70
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Handle: RePEc:bla:jfinan:v:49:y:1994:i:4:p:1451-70

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  1. Peter Cramton & Hamid Mehran & Joseph Tracy, 2008. "ESOP fables: the impact of employee stock ownership plans on labor disputes," Staff Reports 347, Federal Reserve Bank of New York. [Downloadable!]
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  2. Nicolas Aubert, 2006. "Understanding Employer's Stock Holdings in the French Company Savings Plans Using the Literature on the American 401(k) plans," Post-Print halshs-00188518_v1, HAL. [Downloadable!]
  3. Pagano, Marco & Volpin, Paolo, 2002. "Managers, Workers and Corporate Control," CEPR Discussion Papers 3649, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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