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Does Employee Stock Ownership Work? Evidence from Publicly-Traded Firms in Japan

Author

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  • Kato, Takao

    () (Colgate University)

  • Miyajima, Hideaki

    (Waseda University)

  • Owan, Hideo

    (Waseda University)

Abstract

This paper provides novel evidence on the effects of employee stock ownership (ESO), a prominent example of shared capitalism. In so doing, we take advantage of our access to new panel data on Japanese ESO plans for a highly representative sample of publicly-traded firms in Japan (covering more than 75% of all firms listed on Tokyo Stock Exchange) over 1989-2013. Unlike most prior studies, we focus on the effects of changes in varying attributes of existing ESO – the effects on the intensive margin. Our fixed effect estimates show that an increase in the strength of the existing ESO plans measured by stake per employee results in statistically significant productivity gains. Furthermore, such productivity gains are found to lead to profitability gains since wage gains from ESO plans are statistically significant yet rather modest. Our analysis of Tobin's Q suggests that the market tends to view such gains from ESO plans as permanent. We further find that increasing the stake of the existing core participants is more effective in boosting gains from ESO plans than bringing in more employees into the trust. We use unique instruments (the peer firm's matching grant rate and abnormal return) to account for possible endogeneity of our ESO variables, and show that the estimated positive gains from ESO plans are not biased upward and likely to be lower bounds. We also find evidence for complementarity between ESO plans aimed at incentivizing non-executive employees and stock option aimed at incentivizing executives. Finally the positive effects on productivity, profitability, wages and Tobin's Q are found to be larger when the proportion of powerful institutional investors and foreign investors are greater; and smaller for larger firms that are more subject to the free-rider problem.

Suggested Citation

  • Kato, Takao & Miyajima, Hideaki & Owan, Hideo, 2018. "Does Employee Stock Ownership Work? Evidence from Publicly-Traded Firms in Japan," IZA Discussion Papers 11671, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp11671
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    References listed on IDEAS

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    1. Alex Bryson & Richard Freeman & Claudio Lucifora & Michele Pellizzari & Virginie Perotin, 2012. "Paying for Performance: Incentive Pay Schemes and Employees' Financial Participation," CEP Discussion Papers dp1112, Centre for Economic Performance, LSE.
    2. Chris Doucouliagos, 1995. "Worker Participation and Productivity in Labor-Managed and Participatory Capitalist Firms: A Meta-Analysis," ILR Review, Cornell University, ILR School, vol. 49(1), pages 58-77, October.
    3. Bryson, Alex & Freeman, Richard, 2008. "How does shared capitalism affect economic performance in the UK?," LSE Research Online Documents on Economics 51596, London School of Economics and Political Science, LSE Library.
    4. Joseph Blasi & Michael Conte & Douglas Kruse, 1996. "Employee Stock Ownership and Corporate Performance among Public Companies," ILR Review, Cornell University, ILR School, vol. 50(1), pages 60-79, October.
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    6. Douglas L. Kruse & Joseph R. Blasi & Rhokeun Park, 2010. "Shared Capitalism in the U.S. Economy: Prevalence, Characteristics, and Employee Views of Financial Participation in Enterprises," NBER Chapters,in: Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing, and Broad-based Stock Options, pages 41-75 National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    employee stock ownership; shared capitalism; group incentive; productivity; Tobin's Q; managerial entrenchment;

    JEL classification:

    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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