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Employee Stock Ownership Plans and Corporate Restructuring: Myths and Realities

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  • Myron S. Scholes
  • Mark A. Wolfson

Abstract

During the first six months of 1989 U.s. corporations acquired over $19 billion of their own stock to establish employer stock ownership plans (ESOPs). We evaluate the common claims that there exist unique tax and incentive contracting advantages to establishing ESOPs. Our analysis suggests that, particularly for large firms, where the greatest growth in ESOPs has occurred, the case is very weak for taxes being the primary motivation to establish an ESOP. The case is also weak for employee incentives being the driving force behind their establishment. We conclude that the main motivation for the growth of ESOPs is their anti-takeover characteristics.

Suggested Citation

  • Myron S. Scholes & Mark A. Wolfson, 1989. "Employee Stock Ownership Plans and Corporate Restructuring: Myths and Realities," NBER Working Papers 3094, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3094 Note: PE ME
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    References listed on IDEAS

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    1. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-940, September.
    2. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
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    Cited by:

    1. Degeorge, Francois & Jenter, Dirk & Moel, Alberto & Tufano, Peter, 2004. "Selling company shares to reluctant employees: France Telecom's experience," Journal of Financial Economics, Elsevier, vol. 71(1), pages 169-202, January.
    2. Peter Cramton & Hamid Mehran & Joseph Tracy, 2010. "Bargaining with a Shared Interest: The Impact of Employee Stock Ownership Plans on Labor Disputes," Papers of Peter Cramton 98wpesop, University of Maryland, Department of Economics - Peter Cramton, revised Jun 2010.
    3. 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.
    4. Myron S. Scholes & Mark A. Wolfson, 1989. "Converting Corporations to Partnerships through Leverage: Theoretical and Practical Impediments," NBER Working Papers 3092, National Bureau of Economic Research, Inc.
    5. Faleye, Olubunmi & Mehrotra, Vikas & Morck, Randall, 2006. "When Labor Has a Voice in Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(03), pages 489-510, September.
    6. Philippe Desbrières, 2002. "Les actionnaires salariés," Working Papers CREGO 1021101, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.

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