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Employee stock ownership and the cost of capital

Author

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  • Nicolas Aubert

    (CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - AMU - Aix Marseille Université - UTLN - Université de Toulon, AMU IAE - Institut d'Administration des Entreprises (IAE) - Aix-en-Provence - AMU - Aix Marseille Université)

  • Alexander Kern

    (CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - AMU - Aix Marseille Université - UTLN - Université de Toulon)

  • Xavier Hollandts

    (CRCGM et IFGE - Kedge Business School - Kedge BS - Kedge Business School)

Abstract

This paper investigates the relationship between employee stock ownership and the cost of capital, the main determinant of shareholder value creation computed through economic value added (EVA). By reducing agency conflicts within the firm, we hypothesize that employee share ownership reduces the firm's cost of capital by affecting its two components, i.e. the cost of equity and the cost of debt. We test this hypothesis in France, a leading country in terms of employee ownership, based on a panel of the 120 largest listed companies for the 2000-2011 period. We find: (i) no significant relationship between employee stock ownership and the cost of equity; (ii) a negative curvilinear relationship between employee stock ownership and the cost of debt; (ii) a negative curvilinear relationship relationship between employee stock ownership and the weighted average cost of capital. These results suggest debtholders regard ESO as positive as long it is moderate because it shifts risk from them to employees and that this effect is still perceptible in the weighted average cost of capital.

Suggested Citation

  • Nicolas Aubert & Alexander Kern & Xavier Hollandts, 2017. "Employee stock ownership and the cost of capital," Post-Print halshs-01502001, HAL.
    • Handle: RePEc:hal:journl:halshs-01502001
    DOI: 10.1016/j.ribaf.2017.04.007
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01502001v2
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    Cited by:

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    3. Park, Heejin & Noh, Jung-Hee & Pedersen, Melissa & Lee, Sora, 2022. "What are the determinants and managerial motivations for employee ownership in retirement pension plans?," The North American Journal of Economics and Finance, Elsevier, vol. 59(C).
    4. Vega-Gutierrez, Pedro Luis & López-Iturriaga, Félix J. & Rodriguez-Sanz, Juan Antonio, 2021. "Labour market conditions and the corporate financing decision: A European analysis," Research in International Business and Finance, Elsevier, vol. 58(C).
    5. Tran Phan Huy Hieu, 2020. "Effectiveness of policy measures to promote employee share ownership programs in banks," Working Papers hal-02534814, HAL.
    6. MAHMOOD Athar, 2020. "Employee Stock Option Plans: A Meta-Analysis (Understanding Impact Of Esops Through Literature)," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 15(1), pages 100-114, April.

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    More about this item

    Keywords

    Shared capitalism; employee ownership; corporate governance; cost of equity; cost of debt; cost of capital; agency conflicts;
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