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Employee ownership and firm performance: a
meta-analysis
Ernest H. O’Boyle*, Tippie College of Business, Management and Organizations, The
University of Iowa
Pankaj C. Patel*, Management and Operations, Villanova School of Business, Villanova
University
Erik Gonzalez-Mulé, Kelley School of Business, Management and Entrepreneurship,
Indiana University
Human Resource Management Journal, Vol ••,no••, 2016, pages ••–••
Employee ownership has been an area ofsignificant practitioner and academic interest for the past four decades.
Yet, empirical results on the relationship between employee ownership and firm performance remain mixed. To
aggregate findings and provide potential direction for future theoretical development, we conducted a meta-
analysis of 102 samples representing 56,984 firms. Employee ownership has a small, but positive and
statistically significant relation to firm performance (r= 0.04). The effect is generally positive for studies with
different sampling designs (samples assessing change in performance pre-employee–post-employee ownership
adoption or samples on firms with employee ownership), different performance operationalisation (efficiency or
growth) and firm type (publicly held or privately held). Suggesting benefits of employee ownership in a variety
of contexts, we found no differences in effects on performance in publicly held versus privately held firms, stock
or stock option-based ownership plans or differences in effects across different firm sizes (i.e. number of
employees). We do find that the effectof employee ownership on performance has increased in studies over time
and that studies with samples from outside the USA report stronger effects than those within. We also find little
to no evidence of publication bias.
Contact: Pankaj C. Patel, Villanova University, Management and Operations, Villanova School of
Business, 800 E. Lancaster Avenue, Villanova, PA 19085, USA. Email: pankaj.patel@villanova.edu
Keywords: employee ownership; meta-analysis; firm performance
INTRODUCTION
Shared capitalism refers to a variety of employee ownership plans where a part of
employee compensation and/or wealth is tied to workplace or firm performance
(Freeman et al., 2010). Practitioner interest in this phenomenon has increased over
the past four decades, and according to the National Center for Employee Ownership, as of
2013, 28 million US employees were participating in 11,000 employee ownership plans.
Through such plans, employees are now controlling about 8% of corporate equity in the
USA (http://www.nceo.org/). In Europe, 85% of publicly traded firms have employee stock
ownership plans, and in 2011, 10 million employees in Europe held some form of company
stock. Employee ownership plans have also received broad academic interest in fields ranging
from strategic management (Jochim, 1979) to organisational behaviour (Lawrence, 1987; Pierce
et al., 1991) and from labour economics and finance (Gordon and Pound, 1990) to public policy
(Freeman and Reed, 1983).
* The first two authors contributed equally.
HUMAN RESOURCE MANAGEMENT JOURNAL, VOL ••,NO••,2016 1
©2016 John Wiley & Sons Ltd
Please citethis article in press as: O’Boyle, E.H., Patel, P.C. andGonzalez-Mulé, E.(2016) ‘Employee ownership and firm performance:a meta-analysis’.
Human Resource Management Journal doi: 10.1111/1748-8583.12115
doi: 10.1111/1748-8583.12115
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Despite the significant practitioner and academic attention directed to the relationship
between employee ownership and firm performance, empirical findings remain mixed. In his
meta-analysis of 43 studies, Doucouliagos (1995: 58) found that ‘correlations are stronger
among labour-managed firms (firms owned and controlled by workers) than among
participatory capitalist firms [firms adopting one or more participation schemes involving
employees, such as ESOPs (Employee Stock Ownership Plans) or quality circles].’In another
meta-analysis of 27 studies, Kruse and Blasi (1995: 26) concluded that studies on employee
ownership and firm productivity or profitability frequently ‘indicate better or unchanged
performance.’Others have made more recent efforts to summarise the literature (e.g. Blasi
et al., 2003; Kaarsemaker, 2006), but it has been almost two decades since the last meta-analysis.
And numerous empirical studies have been published since. Calling on the need for a
meta-analysis, critics have questioned whether a small proportion of employee stock
ownership is efficacious enough to increase firm performance, whereas others have highlighted
the negative effects of employee ownership such as risk aversion and shirking (Freeman et al.,
2010). Clearly, theoretical development on employee ownership is limited and remains
fragmented (Caramelli, 2011); indeed, a meta-analysis could guide future theoretical
development. In reviewing the relationship between employee ownership and firm
performance, Kaarsemaker and Poutsma (2006: 677) commented on the ‘relative weakness of
the results from empirical research,’whichcalls for a comprehensive meta-analysis of empirical
studies in this rich, multidisciplinary literature. Thus, because of the mixed findings on the
relationship between employee ownership and firm performance and to provide guidance
for future theoretical development as Caramelli (2011) suggested, we conducted a
comprehensive meta-analysis of all empirical studies on employee ownership published in
the English language until 2013 in all disciplines. The identified empirical studies mostly
examined stock ownership and stock option plans together, but some studies assessed the
effects of these structures separately.
Scholars have studied employee ownership through the lenses of agency theory, human
resource (HR) management, organisational behaviour and property rights, among others.
Based on this diversity of disciplines, we are unable to draw on a core theoretical
framework to build our hypotheses. Instead of hypotheses, therefore, we propose research
questions. Based on the number of studies needed for statistical power in a meta-analysis,
we tested several theoretically derived and methodological moderators for which sufficient
numbers of correlations were available. This includes the effects of employee ownership on
firm performance as follows: whether the relationship is stronger in publicly held (or
publicly traded) firms than in privately held firms;
1
whether the effects of employee
ownership are lower in samples including pre-employee or post-employee ownership
adoption versus studies on employee ownership without the pre–post study design;
whether employee ownership affects efficiency more than growth; whether the effect sizes
in studies are stronger in firms with stock ownership versus those with stock option plans;
whether effects are stronger in US firms versus non-US firms; and, finally, whether
percentage ownership or number of employees strengthens the relationship between
employee ownership and firm performance. Finally, we test for publication bias using
Duval and Tweedie’s (2000) trim and fill technique to test whether the journal impact factor
moderates the ESOP–firm performance relation. This effort provides a clearer
understanding of the relationship between employee ownership and firm performance.
We begin by discussing the types of employee ownership plans and recent developments
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in the literature, followed by our research questions and meta-analytic findings. We
conclude by discussing the results and directions for future research.
THEORY DEVELOPMENT
The concept of shared capitalism encompasses a broad array of employee ownership practices.
Beyond the traditional notion of employee stock ownership, shared capitalism includes a
‘diverse set of compensation practices through which worker pay or wealth depends on the
performance of the firm or work group’(Freeman et al., 2010: 4). Employee ownership plans
can be classified into six broad areas: (a) whether employees purchase company stock or they
receive it as benefits; (b) if stock is purchased, do the employees receive it at a discount; (c)
whether employees receive voting rights for owning firm stock; (d) differences in legal
requirements related to the structure of the employee ownership plan; (e) whether employees
are allowed to use pay from gainsharing plans to buy company stock;
2
and (f) whether
employees voluntarily participate in the plan. Variations in firm motives, country and
institutional differences result in a tapestry of ‘distribution of claims and privileges’(Rousseau
and Shperling, 2003: 553) among employees in firms and across countries. Given our brief
overviewand inability to review this richand diverse bodyof work beyond this meta-analysis,
we refer readers to comprehensive reviews in Carberry (2011), Kruse et al. (2010) and
Kaarsemaker (2006).
Through employee stock ownership plans, employees can either purchase stock, receive it as
a benefit or both. Under traditional retirement plans, employees can use their pre-tax income to
purchase company stock, and often times, firms offer stock for purchase at a discount (Core
and Guay, 2001). Stock options, as a mode of contingent ownership, give employees a right
to buy a certain amount of stock at a fixed price over a period of time. Restricted stock gives
employees the right to acquire stock through purchase (and may also be received as a benefit)
but with certain restrictions (e.g. tenure or performance targets are met). Not all employee
ownership plans entail transfer of ownership. Phantom stock and stock appreciation rights
provide cash bonuses (or sometimes in equivalent of stock) equal to the value of a pre-defined
number of shares. In worker cooperatives, worker–members buy membership interest or share
at a fixed price. Overall, significant variations exist in the ways employees can use their own
funds to acquire stock, especially with regard to national differences (Rosen, 2013). The ESOP
World Forum (http://www.esopworldforum.com/) has reviewed variations in employee
ownership plans worldwide.
Employee ownership plans also vary in the level of influence employees may exercise.
At one end of the spectrum are worker cooperatives in which all employees vote and
actively participate in management. At the other end of the spectrum are phantom stock
or stock appreciation rights where participating in governance through ownership is
restricted. In most developed countries, employee owners have the right to vote at annual
meetings (Bruner, 1988; Rosen, 2013); however, the degree of influence varies depending on
the percentage of stock the employees own, the firm’s strategic priorities and country-
specific variations. Although the legal requirements in some countries restrict the employee
owners right to vote at annual meetings, in some countries, employees can participate and
vote in board meetings directly.
In addition to modes of acquiring stock (through purchase or received as benefit) and
differences in the level of participation (required by laws or facilitated by the strategic
needs of the firm), employee ownership plans vary in their breadth. Generally, to qualify
for tax benefits from broad-based stock ownership, firms must allocate shares broadly
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and cannot discriminate among full-time employees, and allocations are based on an
employee’s relative compensation and tenure or a combination of the two. Although the
law often requires participation criteria for stock ownership, in some cases, no legal
requirements exist, and participation is decided through personnel policies. A detailed
discussion of differences in laws for employers and employees related to employee
ownership plans can be found in Rosen (2013) and Doyle et al. (2008). Next, we propose
research questions for the meta-analysis.
Employee ownership and firm performance
There are competing frameworks for why employee ownership should improve performance.
Studies over the years have relied on agency theory (Krueger, 1991), property rights (Rooney,
1988), incentive contracts (Flanagan, 1984) and broader frameworks in management. Agency
theory predicts that ownership and control are separated and that employee stock ownership
should provide necessary incentives to align the owners’and employees’goals. Property rights
theory proposes that residual rights to profits through ownership provide necessary incentives,
whereas the incentive contract framework draws on contract theory to design employee
incentives based on the firm’sobjectivesanditsindustry’scompetitivecontext(Boltonand
Dewatripont, 2005). The broader management literature has focused on motivations and
behaviours mediating the effect of employee stock ownership on performance (e.g. Gerhart
et al., 1995; Rosen et al., 1990; Yanadori and Marler, 2006). We first review the aforementioned
four perspectives and discuss the benefits and costs of employee ownership on firm performance.
Agency theory Organisations face agency costs because of the separation of ownership and
control (Fama and Jensen, 1983). When goals between principals and agents are misaligned,
agency problems may exist at the employee level, where monitoring costs and moral
hazard could be higher. With flattening organisational structures and increased supervisory
responsibilities, monitoring employee behaviour is increasingly difficult; therefore,
employee ownership provides the necessary incentives to improve the firm’s financial
performance and reduce agency costs. Employee payoffs tied to firm performance create
an ecology of incentive contracts throughout the organisation and align employees’and
owners’interests. Although research has questioned whether small amounts of ownership
under shared capitalism provide necessary incentives, agency theory predicts that employee
ownership provides the necessary incentives to improve corporate performance (Igalens
and Roussel, 1999; Oyer, 2004).
Property rights Employees are reluctant to invest in firm-specific human capital unless they have
residual rights to profits (Hart and Moore, 1990; Wang et al., 2009). Property rights refer to
allocating residual rights to assets (Pierce et al., 1991). Employee ownership provides rights to
profits from and control over underlying firm assets. Higher residual rights provide a greater
incentive to increase performance. As ‘legitimate authority rests with property rights’(Blasi,
1988: 217), the property rights framework is increasingly important in explaining employee
ownership dynamics in privatised firms in Eastern Europe (Bogetić, 1993) and China (Dong
et al., 2002). By providing residual rights, employee ownership encourages investments in
firm-specific human capital (Hashimoto, 1981; Jovanovic, 1979) and elicits additional effort from
employees. Firm-specific human capital further complements an organisation’sresourcebundles.
Incentive contracts theory Related to incentive contracts theory (Harris and Raviv, 1979;
Kőszegi, 2014), because increasing firm performance is tied to increasing variable pay,
employee ownership provides necessary incentives across the firm to increase firm
performance. As employee compensation varies with the stock price, improvement in firm
Employee ownership: a meta-analysis
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performance increases the stock price that in turn increases variable compensation, in form of
increase in the value of employee stock endowment. Incentive contracts, in the form employee
ownership, are designed to influence effort toward job tasks, cooperation with stakeholders
within and outside the firm and commitment toward the firm.
Broader management framework To encompass a series of studies in the management
literature on employee ownership, we label it as ‘broader management framework.’Extending
Gerhart (2007), employee ownership may increase both vertical fit (or alignment with firm
strategy) and horizontal fit (or, alignment with structures, technology, resources and employee
practices). Rosen et al. (2005) suggested that an employee ownership culture indirectly supports
the benefits of vertical and horizontal fit in improving involvement, information sharing and
training. Expecting greater residual rights, employees increase investments in firm-specific
human capital, a resource necessary to combine employee human capital with an idiosyncratic
bundle of firm resources (Barney, 1990). In the strategy literature, employee ownership at the
firm level is linked to implementing an innovation strategy successfully (Yanadori and Marler,
2006) and improving the performance of leveraged buyouts (Wright et al., 1994). Put differently,
employee ownership is believed to be a glue that helps increase the efficacy of overlapping and
complementary organisational resources and practices. Active monitoring, participating in
decision-making and greater commitment allow for integrating structures, technology and
resources more effectively. Furthermore, information flow improves potential mismatches in
internal fit, which are resolved through increased cooperation and coordination to improve
horizontal fit (Cooke, 1994).
Employee ownership may also indirectly increase employees’level of involvement in their
respective units. In an extensive study of 41,206 employees from 323 worksites of 14 firms,
Freeman et al. (2010) found that employee ownership was directly linked to greater
participation in decision-making and monitoring fellow employees. Although organisations
are not required to create special participation conduits and practices under employee
ownership plans nor are employees required to change their behaviours, complementary HR
practices or organisational culture can still serve as channels to facilitate such participation.
Based on the previous discussion, employee ownership is clearly tied to firm performance.
As such, employees have an incentive to align their behaviour, motives and actions to meet
the organisation’s strategic goals. Continuing from property rights behaviour, employee
ownership allows firms to ensure that employees have skin in the game as they also have
residual rights. Ledford (2014) stated that firms have adopted employee ownership to increase
employee rewards and to shift the focus toward performance-based payand improve strategic
responses. Employee ownership allows for greater differentiation as employees improve
horizontal fit by increasing responsiveness, enhancing the scope and scale of unit-level human
capital and eliciting necessary cooperation from other unit-level employees.
Negative effects of employee ownership Despite the expected positive relationship between
employee ownership and firm performance, others have proposed a negative relationship.
Employees with different abilities or human capital do not receive their fair share of profits,
and employees with lower abilities or human capital would gain disproportionately under
employee ownership. While economic theory highlights the potential of free riding, recent
work by Freeman et al. (2010) does not find support for free riding. Although employee
ownership varies from a select few participating to a fully employee-owned organisation,
varying perceptions of inputs and abilities among a heterogeneous set of employees may
increase conflicts (Hansmann, 1996). Hansmann (1996) posits that employee ownership is more
efficacious among homogeneous employees such as law partners.
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Furthermore, employee ownership could also increase risk aversion among employees.
Increasing levels of employee ownership could increase preference for firm stability if
employees have significant endowments in the firm, but the resulting loss aversion may also
reduce risk-taking (cf., Sanders, 2001). Others have found that employee ownership increases
entrenchment and exacerbates agency costs (Park and Song, 1995). Supporting the possibility
of entrenchment, when firms adopt an employee ownership plan, stock markets tend to react
positively if outside blockholders are present (Park and Song, 1995) or when activist
blockholders are involved (Bethel et al., 1998). Thus, improved governance from blockholders
is necessary to attenuate expected agency costs of employee ownership. Yet, others have
questioned whether small amounts of ownership are sufficient enough to motivate employees
to elicit espoused behaviour (Blasi et al., 1996).
Because of the mixed theoretical predictions and empirical findings on the effects of
employee ownership on performance, we do not make a directional hypothesis, and instead,
we pose the following research question:
Research Question 1. What is the relationship between employee ownership and firm
performance?
Efficacy of employee ownership: privately held versus publicly held firms
Privately held firms are not publicly traded and are typically not subject to the same
oversight and disclosures to which publicly held firms are subject. Publicly held firms
traded on the stock market are generally larger in size; therefore, the motives and outcomes
of employee stock ownership could be distinct from those for privately held firms. Private
firms have concentrated ownership, in which a family or a small group of owners controls
a majority stake in the organisation. Publicly held firms typically have diffuse ownership,
are larger in size and employ more people (Berle and Means, 1932; Carberry, 2011), which
represent a different governance structure from publicly and privately held firms. In the
1980s, tax benefits were the primary reason to adopt employee ownership plans in public
firms in the USA. A lower tax bill leads directly to higher performance, reduces indirectly
the cost of capital and increases cash flow from higher profits, allowing public firms to
make more investments.
3
For public firms, employee ownership may also reduce the threat
of acquisition (Kaarsemaker, 2006).
Differences between publicly and privately held firms may influence the employee
ownership–firm performance relationship. Concentrated ownership in private firms
could led to realising lower gains from employee ownership compared with gains in
public firms. This occurs because of the lower liquidity of stock, where employees
may have limited ability to ascertain a fair price for their stock. Private firms, in
general, are smaller than public firms and are relatively less competitive; therefore,
employees in private firms have limited strategic avenues to leverage their human
capital compared with public firms, which can recombine their human capital with a
broader set of resources to realise higher performance. Because public firms are subject
to oversight from the government and from institutional investors, employees in such
firms are less subject to moral hazard (e.g. tunnelling), are unable to benefit from
external oversight and are more exposed to opportunistic behaviours. It is worth noting,
however, that some studies have found that employee ownership leads to higher
shareholder returns in public firms (Jones and Kato, 1995).
Even though share-repurchase programmes provide liquidity in private firms and a trust
that oversees the employee ownership programme, private firms have a poorer quality of
Employee ownership: a meta-analysis
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financial reporting (Ball and Shivakumar, 2005; Hope et al., 2013). Furthermore, concentrated
ownership has been known to engage in policies that benefit owners the most (Durand and
Vargas, 2003; Uhlaner et al., 2007). Although trusts could oversee the private owners, lower
transparency in financial reporting (Bianco et al., 2013; Michaely and Roberts, 2012) and lack
of benchmarks for fair valuations such as a stock market may leave private firm employees
at a disadvantage for ownership. It is well documented that private firms are opaque and their
concentrated ownership leads to moral hazard and entrenchment (Morck et al., 2004).
Employees in private firms may thus face more hold-up problems that arise when alternate
uses of human capital developed for the firm are limited. Public firm employees can be
somewhat compensated for hold-up through stock price appreciation, but because private
firms lack a stock market to decide the fair market value of the stock, employees may realise
lower gains from ownership.
Larger and established public firms leverage HR practices more effectively than private
firms (cf. Way, 2002); thus, it could be expected that employee ownership could improve
performance in a public firm more so than in a private firm. Because public-firm employees
tend to overweigh company stock in their retirement portfolios (Blasi et al., 2010), they are
more likely to increase effort in order to increase the overall value of their retirement
portfolio.
Finally, owning stock in a privately held firm limits governance participation and
enforcement. Concentrated ownership in the hands of a select few limits employee
oversight and prevents employees from actively engaging in firm management. Relative
to employees in private firms, the voting rights for public-firm employee stock owners give
employees more influence on firm management. Although private firms may allow
employees to participate in governance, concentrated ownership may overshadow
employee oversight. With limited perception to influence the firm, performance gains could
be lower in private firms.
In the previous discussion, our arguments are based on intuition in financial economics. This
said, we do not aim to portray that employee ownership in private firms is inherently
ineffective or that public firms are ideal for employee ownership. In fact, recent works by Kruse
(2002) and Kaarsemaker (2006) have shown that employee ownership in worker cooperatives
and privately held firms have a positive impact on firm performance. Privately held firms
with shorter lines of sight and cohesive cultures are more conducive for employee ownership
(Rosen et al., 2005); therefore, it should not be construed that employee ownership is inherently
poor for private firms.
4
Against this background of systematic differences in adopting and leveraging
employee ownership plans in private and public firms, we pose the following research
question:
Research Question 2. Is the relationship between employee ownership and performance different in
publicly held firms that in privately held firms?
Employee ownership and performance outcomes
Here, we focus on two types of performance outcomes: growth and efficiency. We
acknowledge that employee owners may not directly influence strategic decisions in the upper
echelons; however, they can be directly involved in implementing and executing firm strategy.
Using growth as an outcome, the evidence on whether employee ownership increases
preference to implement and execute innovation and risk-taking strategies is mixed (Harden
et al., 2010). Scholars in social psychology have construed employee ownership as an extrinsic
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©2016 John Wiley & Sons Ltd.
reward that is less likely to improve creative performance. For example, Harden et al. (2010:
228) concluded that ‘Taken together, past theory and empirical work on creativity and rewards
has failed to provide an understanding of how best, if at all, to reward employees to achieve
creative behaviour’. Furthermore, from their study of 25,014 respondents from a single
company, they inferred that ‘shared capitalism and high performance work policies affect
innovation outcomes through direct effects, interactions and indirect effects’(Harden et al.,
2010: 248).
Although designed to improve strategic response and adaptation, employee
ownership may not lead to pursuing growth; instead, preserving their endowment
and firm-specific human capital employees would support strategies that increase
risk-taking. Meade (1972: 426) proposed that ‘while property owners can spread their
risks by putting small bits of their property into a large number of concerns, a worker
cannot put small bits of effort into a large number of different jobs.’Employees that are
therefore risk-averse, due to the inability to diversify their human capital, lead to
preferring efficiency over growth.
Related to efficiency as an outcome, firm-specific human capital represents a sunk cost.
Employees would be reluctant, therefore, to support and execute risky strategies and prefer
to maintain the status quo (Cannella, 1995). Employees would evaluate the ‘gamble [of
improving value or controlling further decline in endowment] described in terms of its
“probability of winning”rather than in terms of its “probability of losing”’(Levin et al.,
1998: 159). Increasing employee ownership implies deep social bonds and norms, and
employees are more likely to focus on maintaining the status quo to reduce employment risk
(Ben-Ner and Jones, 1995). Furthermore, employees would be averse to jeopardising either
their less diversified retirement portfolio (consisting of significant amounts of firm stock) or
their firm-specific human capital, which is less valuable in external labour markets. Thus,
employees would be more likely to improve organisational efficiency.
Supporting the preference for stability and efficiency, employee ownership increases firm
survival (e.g. Blasi et al., 2013; Estrin and Jones, 1992; Iqbal and Hamid, 2000), productivity
(Kumbhakar and Dunbar, 1993; Mitchell et al., 1990; Park and Song, 1995) and organisational
stability (Kruse, 2002; Kurtulus et al., 2011). Furthermore, increasing employee ownership
diminishes the focus on growth through reduced R&D investment and commitment to
innovation (Gamble, 2000) and leads to a decreased focus on maximising value and greater
preference for lowering risk (Faleye et al., 2006). Recent work by Kim and Ouimet (2014)
showed that increased employee ownership led to increased productivity and lowered
growth.
Against this background, we pose the following research question:
Research Question 3. Is there a difference in the effects of employee ownership on efficiency versus
growth related performance outcomes?
METHODS
Data description
We draw on studies across multiple disciplines to assess the effects of employee ownership on
performance. Our search criteria covered all studies published in the English language. We
entered a variety of search terms related to employee stock ownership (i.e. employee stock
ownership, employee stock ownership plans, employee ownership, employee stock options
and broad-based stock options) and firm performance terms (i.e. firm performance, return on
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assets/equity, Tobin’s q, growth, earnings, cumulative abnormal return and book-to-market
ratio) into electronic databases (i.e. ABI Inform, ProQuest Dissertations and Theses and Google
Scholar). We then reviewed abstracts of Academy of Management conferences between 2006
and 2013 and examined the reference sections of narrative reviews of employee stock
ownership plans (e.g. Kruse and Blasi, 1995; Rosen et al., 1990). Finally, we manually searched
books and reports at the library of a major university located in the Midwestern USA. The
manual search was restricted to the Library of Congress classification code range of HD4928.
P62 (wages, stock option and employee stock options) and HD5660 (labour markets, labour
supply and labour demand). The search was finalised in September 2013. We identified 592
citations
5
potentially examining the relationship between employee stock ownership plans
and firm performance.
Sample and inclusion criteria
Our first inclusion criterion was that articles needed to be quantitative studies and report a
numerical relationship between an employee stock plan (i.e. stock ownership and stock
options) and firm performance. The samples used in the target studies needed to include
either a continuous measure of ownership (e.g. percentage of stock employees possessed)
or a non-employee ownership comparison group. We excluded samples in which employee
ownership was combined with other employee benefits into a single variable (e.g. a
composite of profit sharing and stock ownership). The second criterion was that the stock
ownership/options plan needed to be broad based; as such, we excluded studies in which
the plan was restricted to executives. The third criterion was that the measure of
performance needed to be fiscal (e.g. profit), at the firm level of analysis. Following Wood’s
(2008) detection heuristics, we identified and eliminated duplicate samples reported in two
or more publications. A subsample of studies was coded independently by two of the
authors, and Cohen’s Kappa exceeded 0.90 indicating strong inter-rater reliability. Table 1
shows that among the 592 citations, our inclusion criteria resulted in a final sample of
102 studies from 14 countries. Table 1 also shows the types of plans we coded from
different countries. Studies were most commonly excluded because they either (a) did not
provide the necessary statistics to compute a correlation coefficient (e.g. means and
accompanying standard deviations, standardised ordinary least squares regression
coefficient and t-statistics); (b) did not estimate the ownership–performance relationship;
or (c) grouped various types of employee participation (e.g. profit sharing and stock
ownership) into one variable or included employees that did not acquire ownership (e.g.
profit sharing where ownership is not transferred, but profits are shared). Coding for each
study in the meta-analytic sample is available in Appendix A in the Online Supplement.
Citations for studies included in the meta-analysis are available in Appendix B in the
Online Supplement.
RESULTS
For Research Question 1, we coded the correlation or used equations from Hunter and
Schmidt (2004) and Peterson and Brown (2005) to convert the reported effect sizes into
correlations. For Research Question 2, we coded whether the firms in the sample were
publicly held or private. For Research Question 3, efficiency included studies reporting
productivity, labour productivity, return on assets, return on capital, translog production
function and value-added productivity. Growth included studies reporting abnormal
returns in the long term, market-to-book ratio, total stockholder returns, annualised market
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returns and firm growth (sales, assets or profitability). For overall performance outcome,
we included studies in which performance could not be classified under either efficiency
or growth (e.g. net profit).
To control for the potential methodological artefact of when the study was carried out, we
either coded the date of data collection (or year used in an archival data set) or the median year
for time-series data.
Analytic technique
We drew from both Hunter and Schmidt’s (2004) and Lipsey and Wilson’s(2001)random-
effects meta-analytic methods for the meta-analyses. The former was used for the overall
meta-analysis between employee ownership and performance and calculating subgroup
effect sizes (e.g. employee ownership within private firms). The latter was used for testing
between-group differences and meta-regressions, as well as tests of publication bias. To
conduct the meta-analyses, we weighted the effect sizes from each study in our sample
based on the study’s respective sample size. We used this information to compute an
overall mean-weighted correlation that controls for sampling error in the primary studies
(r) and accompanying standard deviation for the mean-weighted correlations (SD
r
). Because
Hunter and Schmidt (2004) meta-analyses assume random effects, variance among the
effect sizes can be partitioned into actual variance among effect sizes (i.e. due to
moderators) and variance attributable to sampling error. Thus, we report the percentage
of variance attributable to sampling error (%SE). In addition, we calculated and report
95% confidence intervals (CI) and 80% credibility intervals (CV) using formulae outlined
in Whitener (1990). The 95% CI provides information regarding whether a particular effect
size is significantly different from zero, and the width of the 80% CV provides information
regarding whether the distribution of effect sizes in the population of studies includes
moderators. For the proposed moderators, categorical moderators were tested with a
between-group difference test, with the statistical significance of a moderator category
indicated by the Qstatistic. We tested continuous moderators (median year, percentage
owned, 5-year journal impact factor and firm size) using unrestricted maximum likelihood
meta-regression to regress the moderators on the study effect sizes and weighted each
effect size by the inverse of the sampling error variance (Lipsey and Wilson, 2001). In these
TABLE 1 Country of origin for studies in meta-analytic database
Country of study Total number of studies Ownership Options
Canada 1 ——
China 2 2 —
Finland 2 —2
France 3 3 —
Germany 1 —1
Italy 3 3 —
Japan 5 5 —
South Korea 2 ——
Malaysia 2 —2
Poland 3 3 —
Singapore 1 —1
Taiwan 1 1 —
United Kingdom 8 7 1
USA 68 16 52
Not reported 1 1 —
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analyses, the statistical significance of the regression slope (β) indicates moderation by the
associated variable.
Our analyses were based on 102 samples reporting on the effectiveness of employee stock
ownership or employee stock option plans in 56,984 firms. The mean sample size was 558
firms, and the median was 155 firms. The disparity between the two measures of central
tendency indicates a positively skewed distribution with larger studies pulling the mean
upward. Although meta-analysis is not inherently biased by skew, Borenstein et al. (2005)
recommended a ‘one-study-removed’analysis to ensure that no single study plays an overly
impactful role on the estimates. The one-study-removed technique is an iterative process
whereby the meta-analysis is first run with all studies (or more specifically all samples)
included except Sample 1 and then all studiesincluded except Sample 2, and so on. If removing
any single sample substantially alters the overall estimate (e.g. removing Sample 56 shifts the
overall mean estimate from –0.05 to +0.10), then we might conclude this particular sample is
an outlier or warrants greater scrutiny. We found that the overall mean estimate changed no
more than 0.003 based on removing any one sample. Thus, we concluded that no sample,
big or small, had an undue influence on the overall results.
In Table 2(a), the sample-size-weighted mean correlation between employee ownership and
performance was 0.04, and the 95% CI did not include a zero(95% CI: [0.02, 0.05]). The 80% CV
was quite narrow (80% CV: [–0.03, 0.10]), which indicates a fairly robust effect, but does not
entirely rule out the presence of moderators. To test for moderation and answer Research
Questions 2 (differences in effect size of public vs private firms) and 3 (differences in effect size
of efficiency vs growth performance outcomes), we computed the effect size for each individual
moderator category and accompanying 95% CIs. However, as shown in Table 2(a), firm type
(public vs private) and performance operationalization (efficiency vs growth) were not
significant moderators of the observed variance in the employee ownership–firm performance
relationship (Q
between
= 0.80 and 0.19, respectively). Q
between
follows a chi-square distribution,
and its interpretation is similar to that of a Z-value. Thus, for both Research Questions 2
(i.e. public vs private ownership) and 3 (i.e. efficiency vs growth related performance
outcomes), we find no difference.
Post-hoc analyses
In addition to the three research questions derived from extant theoretical work, we
assessed variation in effect sizes based on design and sampling differences across studies.
We began by assessing whether effects in studies drawing on samples of firms with pre-
employee–post-employee ownership adoption differ from those in studies drawing on
samples of firms only with employee ownership. We also investigated whether effect sizes
differ between stock option ownership plans and traditional stock ownership plans,
whether effect sizes differ between studies with US versus non-US samples and whether
effect sizes vary with percentage employee ownership or number of employees in a firm.
With more firms adopting employee ownership plans, we also explored whether effects
sizes in studies have declined over time. Finally, we tested for publication bias. The aim
of the post-hoc analyses was to further inform study design for future studies on employee
ownership.
Pre–post and non-pre–post sample adoption We expect that the effects in studies on pre-
employee and post-employee ownership adoption would be greater than effects in studies with
only post-adoption employee ownership samples, or non-pre–post samples. We coded studies
with a pre-employee–post-employee ownership effects and samples with only effects in firms
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with employee ownership plans. As presented in Table 2(a), we find that while effects are
positive and significant for either type of study, the differences between these types of effects
are not significant (Q
between
=0.24).
In addition to the correlation coefficient, we also computed the sample-size-weighted mean
per cent difference in performance attributable to employee ownership. We did this for the
studies in our database reporting the mean performance scores for employee ownership firms
and other firms and for studies reporting the mean performance scores before and after an
employee ownership scheme was implemented. Such an index provides an intuitive metric
for the effect that employee ownership schemes have on firm performance. Of our database,
50 studies (36 employee ownership vs other firm studies; 14 pre–post studies) provided the
necessary information to compute the per cent difference. We found that employee ownership
TABLE 2 Meta-analytic estimates
kNrSD
true
95%CI 80%CV %SE Q
Employee ownership–performance [R1] 102 56,984 0.04* 0.05 0.02; 0.05 –0.03; 0.10 38 n/a
Type of firm [R2]
Public 69 39,594 0.03* 0.04 0.02; 0.05 –0.02; 0.09 49 —
Private 21 5,932 0.02 0.05 –0.01; 0.06 –0.04; 0.08 62 0.80
Performance [R3]
Performance 34 38,505 0.01 0.05 –0.01; 0.03 –0.05; 0.08 26 —
Efficiency 43 13,417 0.05* 0.07 0.02; 0.08 –0.04; 0.15 38 —
Growth 21 15,585 0.03* 0.02 0.01; 0.05 0.01; 0.05 84 0.19
Study Design
Pre–post 23 7,218 0.06* 0.00 0.03; 0.08 —100+ —
Non-pre–post 79 49,766 0.03* 0.06 0.02; 0.05 –0.04; 0.11 32 0.24
Type of plan
Ownership 75 37,790 0.03* 0.06 0.02; 0.05 –0.04; 0.11 38 —
Options 25 18,448 0.04* 0.05 0.01; 0.06 –0.03; 0.10 35 1.21
Location of firms
International 36 21,068 0.06* 0.08 0.03; 0.08 –0.04; 0.16 22 —
USA 66 35,916 0.02* 0.03 0.01; 0.04 –0.01; 0.06 72 5.00*
Publication status
Journal article 61 28,128 0.05* 0.05 0.03; 0.06 –0.02; 0.11 48 —
Other 41 28,856 0.02* 0.06 0.00; 0.04 –0.05; 0.10 31 2.97
Predictor kβSE R
2
Q
model
Q
residual
Model 1: Median year 96 0.35 0.00 0.12 10.88** 76.30
Model 2: Per cent owned 37 –0.12 0.04 0.02 0.45 29.10
Model 3: Ln (employees) 19 –0.11 0.01 0.01 0.19 18.13
Model 4: 5-year impact 38 0.00 0.01 0.00 0.00 3 7.04
(a) Correlation between employee ownership and performance and categorical moderator tests. (b) Tests of continuous
moderation with mixed effects regression (unrestricted maximum likelihood).
Oper., operationalization; k, number of statistically independent samples; N, total sample size; r, weighted mean correlation;
SD
true
, standarddeviation of the population estimate; 95% CI, 95% confidence interval; 80% CV,80% credibility interval; %SE,
percentage of variance attributable to sampling error; Q, between-group difference test.
*p<0.05.
k, number of statistically independent samples; β, standardised meta-regression coefficient; SE, standard error of
unstandardized coefficient; R
2
, variance accounted for by model; Q
model
, heterogeneity attributable to predictor; Q
residual
,
overall heterogeneity in model.
** p<0.01.
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firms had performance scores 35% higher, on average, than other firms, and that implementing
employee ownership schemes was associated with a 32% increase in performance, on average.
We should note that these percentages are quite large relative to the magnitude of the
correlation we found, which is likely because the effect sizes in our meta-analyses were
commonly regression coefficients controlling for other relevant variables (e.g. firm size). These
percentages, in contrast, do not controlfor other variables; as such,these percentages should be
interpreted with caution.
6
Type of employee ownership plan In recent work by Freeman et al. (2010), stock
ownership and stock option plans are considered to be a part of shared capitalism.
Although there are a wide variety of employee ownership plans, there could be a
difference in effects between employee stock ownership plans versus employee stock
option plans. Stocks are endowed immediately under stock ownership plans, whereas
stock options are exercised only if stock price is at or above the strike price. As such,
inter-temporal variation in ownership between the two modes of ownership could elicit
different reactions. Stock options could increase risk-seeking as the value of option
increases with higher firm volatility, whereas stock ownership increases loss aversion,
because ownership is endowed immediately.
We classified broad-based plans as stock ownership or stock options based on the original
authors’statements or descriptions (e.g. ‘employees were allowed to purchase stock within
5 years for the 1998 price’). As documented in Table 2(a), both stock ownership and stock
option plans were positively related to performance, but there was no significant difference
in effect sizes (Q
between
=1.21).
Do effect sizes vary between US and non-US firms? Adopting employee ownership plans is
driven by economic, cultural and institutional factors. In several European countries,
employee ownership plans are adopted for altruism or benevolence toward employees.
Elsewhere, in Asian countries, employee ownership is promoted because of greater
collectivism. Comparatively, in the USA, greater short-term thinking among managers
(Laverty, 1996) and greater arm’s-length dealings with employees (Budd, 2010), employee
ownership plans are motivated more by economic gains. The preponderance of data was
drawn from the USA, but several studies were conducted in various locations around the
world. Unfortunately, besides the USA, there was no specific country that contained a
sufficient number of studies for a separate analysis; therefore, we could only compare the
USA with the international community. We found that studies conducted in the USA were
significantly different from studies conducted elsewhere. Specifically, studies carried out in
the USA report a markedly weaker relationship between employee ownership plans and
firm performance than those carried out internationally (r
USA
=0.02, r
international
=0.06,
Q
between
=5.00, p<0.05).
Is employee ownership a management fad? One of the concerns voiced in recent years is
management fads (Ghemawat, 2002; Gibson and Tesone, 2001; Miller and Hartwick, 2002;
Newell et al., 2001). Managers could adopt employee ownership not for strategic reasons, but
because of mimetic pressures and the bandwagon effect. If employee ownership practices do
not aim to improve performance and are indeed fads, then effect of employee ownership on
performance in empirical studies over the years should decline. However, if it is a viable
management practice, then firms would learn to deploy it more efficaciously over time (Miller
and Hartwick, 2002). In this case, the effects would increase or remain stable in studies
conducted in more recent years than those conducted in past years.
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To test for this possibility, we coded a continuous variable of median year of observation
when the years of data collection were reported in the study (k= 96). To test this moderator,
we regressed the correlation between employee ownership and performance from the relevant
studies on the median year of observation while weighing each study by the inverse of the
sampling error variance (Lipsey and Wilson, 2001). As shown in Table 2(b), the regression
coefficient for year of study was significant (β=0.35, p<0.01) and indicates that the effect of
employee ownership on performance has increased over time. It is more likely, therefore, to
be an organisational practice that has led to sustained improvements in performance than a
management fad.
Percentage of employee ownership We tested whether increasing percentage of employee
ownership increases performance. We coded studies that provided information on percentage
employee ownership (k=37). As showed in Table 2(b), the percentage of ownership (β=–0.12,
p>0.10) was not a significant predictor of the employee ownership–performance relationship.
Is employee ownership more effective in firms withmore employees? One source of variance in
employee ownership effectiveness could be the firm’s size. To test this possibility, we regressed
the effect sizes onto firm size (i.e. log number of employees). Our results are presented in
Table 2(b). The relationship was negative, indicating that as firm size increased, employee
ownership efficacy decreased, but the effect was not significant and explained only 1% of
variance in employee ownership plans (R
2
=0.01).
Test for publication bias Publication bias refers to systematic suppression of results that are
counterintuitive or statistically non-significant. This results in a population of effect sizes that
do not accurately reflect reality and are biased, usually in the direction of larger effect sizes that
conform to the dominant theoretical paradigm in an area of study. Figure 1 depicts the funnel
plot derived by plotting effect sizes on the x-axis and the precision (or inverse standard error) of
the sample on the y-axis (Duval and Tweedie, 2000). Because sampling error is randomly
FIGURE 1 Test of publication bias. The x-axis is the effect size, and the y-axis is the precision (1/standard
error). White circles are observed samples, and black circles are imputed studies
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distributed, the plotted samples should make a symmetrical pattern with roughly half of the
samples to the left of the mean effect size and half to the right. Samples with greater precision
(i.e. larger sample size) suffer from less random sampling error and therefore, typically cluster
close to the top of the funnel plot. Samples with less precision suffer from greater random
sampling error and scatter throughout the base of the funnel plot. When publication bias is
present, the funnel plot will be asymmetric and will appear as if samples are missing on one
side. The funnel plot in Figure 1 shows that the distribution is slightly asymmetrical with six
studies to theleft that are potentially missing (shown as black dots). This indicates the potential
for publication bias in that small sample studies that find negative relationships between
employee ownership plans and firm performance are underrepresented in the population of
studies. When asymmetry is found, the trim and fill technique will impute these six studies
(i.e. treat the black dots or ‘missing studies’as if they were observed effect sizes) and then
evaluate whether the overall results change the ‘missing studies’had been included. If the
overall estimate changes when the six imputed studies are added to the analysis, then this
provides evidence of potential publication bias. In the present study’s case, the relationship
with and without the six studies was identical to the third decimal place, with no change in
effect direction or statistical significance.
Although our results are likely free frompublication bias, it is still possible thatthe literature
on employee ownership plans contains a bias toward positive results. This bias could manifest
itself as a true deficiency bias (i.e. studies without positive results are systematically absent from
the published literature) or as an availability bias, where the ‘better’results are published in
increasingly higher tier journals. To test for these two possible sources of misrepresentation
in the literature, we first compared journal articles with other sources of data (e.g. dissertations,
books and working papers). If the deficiency bias were present, we would expect to see smaller
effect sizes in studies that have not gone through the peer review journal process. As shown in
Table 2, we found that journal studies presented stronger results than non-journal studies
(r=0.05 vs r= 0.02, respectively), but the difference was not statistically different
(Q
between
= 2.97). We refer to studies published in journals that are peer reviewed as well as
non-journal studies, including book chapters, which are peer reviewed but not published
journals. As such, we cannot reject the null hypothesis that this literature is free from bias.
For the second possible source of bias, we regressed effect sizes onto 5-year journal impact
factors. If there was a preference for large, statistically significant results, we would expect to
see a relationship between effect size and journal impact factor. As shown in Table 2, however,
we found no evidence of preferential publication for more positive results (β=0.00).Insum,the
evidence for publication bias is not particularly compelling, and the estimates presented in
Table 1 are likely free from this form of bias.
DISCUSSION
Our meta-analysis of 102 studies representing 56,984 firms from around the world found a small
but significant effect of employee ownership on firm performance (r= 0.04). Although small, it
should be noted that even small effects can lead to large increases in the dollar value of firms.
For example, our results suggest that a firm with $1 million in profits could realise an increase
of $40,000. The results show no difference in performance effects for public versus private firms
or for samples with pre-adoption and post-adoption effects versus samples of firms with
ongoing employee ownership plans. Furthermore, the effects of employee ownership are not
significantly different for efficiency or growth-related outcomes. No evidence of publication bias
lends further credibility to the results. Also encouraging in post-hoc analyses are the findings
Ernest H. O’Boyle, Pankaj C. Patel and Erik Gonzalez-Mulé
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©2016 John Wiley & Sons Ltd.
that the effects of stock ownership plans versus stock option plans on performance are not
significantly different. Further interesting is the finding that the effects in US samples are
weaker, albeit still significant, than in international samples. In the current meta-analysis, we
focused on the relationship between employee ownership and firm-level performance. Because
we were unable to identify sufficient studies with employee-level outcomes, we were not able to
test these individual-level effects. Nevertheless, current research on employee behaviours such
as commitment, effort, monitoring and lower turnover intent is indirectly consistent with higher
performance on firms with employee ownership (Blasi et al., 2008).
Related to the conjecture on employee ownership as a management fad (Ben-Ner and Jones,
1995), it does not seem that the effects of employee ownership on performance have declined
over time. Instead, reported effects in studies have become stronger over time. Past work has
proposed that there are economies of scale and scope in adopting employee ownership in
larger firms. However, the number of employees was not a significant moderator in the
relationship between employee ownership and firm performance. Because higher-tier journals
could seek studies demonstrating stronger effects to support past theories, we tested whether
journals with higher impact factors would publish studies showing stronger effects of
employee ownership. We did not find support for such a bias, thus discounting the possibility
that higher-tier journals have systematically published studies reporting higher effects.
Implications and avenues for future studies
Our findings provide several directions for future research and have implications for future
research on employee ownership. In Table 3, we identify the theoretical areas that could be
used to further develop this stream of research.
Employee ownership and firm performance During its early years, some labour economists
celebrated employee ownership, whereas others questioned it. Although a steady stream of
empirical studies has emerged over the decades, efforts toward developing a theoretical
framework have been limited (for exceptions, see Buchko, 1992; Pierce et al., 1991). Notably,
Kaarsemaker and Poutsma (2006) and Kruse (2002) have called to integrate employee
ownership into broader management theories such as high performance HR practices or
theories on employee-level micro-dynamics. Future studies could further test for variations
in the effects of employee ownership on firm performance based on differences in HR practices,
firm-specific human capital or strategic orientation of the firm.
Employee ownership could strengthen the effects of high performance work practices on
firm performance through improved recruitment and selection of employees (D’Art and
Turner, 2004), greater participation (Klein, 1987), increased commitment (Klein, 1987) and
greater flexibility (Kruse, 2002). Gerhart and Rynes (2003) and Gerhart et al. (1995) proposed
that employee compensation plans have a Thorndike’s Law of Effect, which indicates that high
performance followed by monetary rewards (of higher ownership) improves future
performance. They also propose the role of expectancy theory where expectations of higher
future rewards increase current efforts. Employee ownership may also lower perceptions of
inequity in reward–contribution ratio and improve employee motivation (Gerhart et al.,
1995). Future studies could further test for complementary effects of employee ownership
and HR practices. Drawing on the resource-based view, firms aim to develop the knowledge,
skills and abilities of its employees to improve performance. Higher ownership levels could
lead employees to make higher investments into developing their human capital. Employee
ownership could also influence the motivation to participate and maintain intensity and
sustained duration of effort to contribute to the firm.
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TABLE 3 Implications of the findings for future theoretical development
Research Question Finding Inference Theoretical development Theory
Research Question 1
(employee ownership is
positively related to
performance)
Significant effects, but
narrow CV
Narrow CV indicates that effects
of employee ownership are
less conditional on contextual
firm-related factors
•Employee ownership is less contingency based. •Contingency theory
vs Universalism
theory
•Employee ownership has more universalistic
support
•Sociological theory
•Effects of employee ownership would be
stronger through participation and training.
Research Question 2
(Effects are stronger in
public firms than in
private firms)
No significant difference Public firms do not realise higher
gains than private firms when
using employee ownership
•Principals aiming to lower agency costs under
diffuse ownership in public firms may not
realise significant performance improvements
•Agency theory
•Lack of liquidity of stock in private firms is not
a hindrance for its employees in investing in
human capital, participation or motivation.
•Liabilities of
smallness
•Economies of scale are less likely with
employee ownership in larger public firms
•Economies of scale
in HR practices
Research Question 3 (Effects
are stronger for efficiency
instead of growth)
No significant difference Employee ownership facilitates
both efficiency and growth-
oriented outcomes
•Employee ownership as an ambidextrous HR
practice that allows pursuing both growth
and efficiency
•Organizational
Ambidexterity
literature
Post-hoc analyses
Effects in pre–post studies are
stronger than effects in post-
implementation studies
No significant difference The benefits of employee
ownership do not seem to
decline over time
•Employee ownership motivates employees
under varying organisational goals
•Adaptive
organisational
practices
Whether effects of employee
ownership on performance
have changed over time
Reported effects of employee
ownership across studies
have remained steady
over time
Effects of employee ownership
on performance have
remained steady over time
•Employee ownership is possibly an
institutionalised practice with continued
influence on firm performance
•Institutional theory
Whether there are differences
in effects of stock ownership
and stock option ownership
plans on performance
No differences in effects of
stock ownership and stock
options-based ownership
plans on performance
Stock versus stock options do
not have differential effects
on performance
•Stocks increase loss-aversion or risk-aversion
and stock options increase risk-seeking.
However, neither incentive mechanism has a
stronger impact than the other
•Risk bearing and
micro-ownership
Whether gains in employee
ownership are higher for
larger firms (measured as
number of employees)
Impact of employee
ownership is not stronger
in larger firms
‘Scale’economies from employee
ownership are not present in
larger firms
•Limited gains from aggregation effects from a
large number of employees
•Aggregation effects
of organisational
practices
•Liabilities of smallness are limited for small
firms when implementing employee ownership •Liabilities of
smallness
Whether effect size is stronger
in US samples vs
international samples
Effects of employee
ownership on performance
were weaker in US samples
than in international
samples.
Possible cultural and institutional
differences in US firms could
limit effect of employee
ownership on performance
•Efficacy of shared capitalism in increasing firm
performance is lower in US firms.
•Institutional theory
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Although we take a financial economics perspective in developing our research questions,
the sociological implications of employee ownership must not be overlooked. The sociological
lens is critical to understanding the formal and informalstructures undergirded and supported
by employee ownership.
7
Aggregating employee ownership from the micro-level to meso-level
is facilitated by employee ownership participation in job decisions and by both job-related and
employee ownership-related training (Freeman et al., 2010; Kruse, 2002; Rosen et al., 2005). Such
social exchange structures provide a social ecology that promotes trust, cooperation and social
capital among employees. In addition to financial economics and organisational psychology
lens, sociological lens could further help open the black box between employee ownership
and firm performance.
Public versus private firms Financial economists have long touted governance benefits in
public firms versus those of private firms. Public firms with better resources and capabilities
than private firms could better complement employee ownership to realise higher gains. The
results, however, show that the relative difference in effects between the two types of firms is
marginal. As Freeman et al. (2010: 3) stated, ‘plausible risk-aversion parameters’are greater
in private firms because of limited ‘thickness of asset markets.’The lack of significant
differences in effect sizes also indirectly debunks the supposed reticence of private firm
employees in investing in their human capital because of liquidity concerns. Given there are
no meaningful differences in effects, these costs of limited liquidity and lower diversification
are less plausible. Based on Bova et al. (2015), employee ownership could therefore have
positive externalities such as lower likelihood of fraud, higher corporate social responsibility
and higher ethical conduct. Future studies could focus on these additional avenues of research.
Impact on efficiency versus growth Agency theory proposes that compensation is a strategic
lever for a firm to increase performance (Harden et al., 2010). Studies have indicated that because
employee ownership leads to sharing profits and losses, it may elicit risk aversion from
employees, resulting in a greater focus on the reliability of performance and not on performance
growth. Because gains and losses are shared jointly, employee ownership could stifle sorting
(Lazear, 2000), with more capable employees having reduced incentive to share performance
gains with others. The resulting ‘team-based’compensation could increase free riding (Bonin
et al., 2007). Therefore, it is expected that employee ownership could reduce risk-taking, increase
focus on productivity and improve reliability in performance. Significant results for both
efficiency and growth signal the potential adaptive capability of employee ownership (i.e. the
firms’ability to maintain efficiency while pursuing growth) to pursue change and stability
(Farjoun, 2010). Future studies could explore whether firms with high levels of employee
ownership realise higher performance in unpredictable and unstable environments.
Type of plan Work in financial economics has shown that stock ownership and stock options
elicit different actions from employees. Employee stock ownership may increase preferences
for organisational stability and efficiency (Blair et al., 2000; Kurtulus et al., 2011). Stock options,
in contrast,increase risk-taking, as option value increases by increasing stock price and/or stock
volatility. While this logic is prevalent in financial economics, when considered through the lens
of employee ownership, we do not find significant differences between the two plan types.
Effects in US versus international samples The results show that the effect size for samples of
US firms, although positive, is lower than the effect size in international samples. Future studies
could explore further whether institutional and cultural differences impact gains from
employee ownership plans. Institutional and cultural factors could explain not only
interactions among employees but also their general attitude toward the firm. Cross-country
differences on the impact of employee ownership on firm performance remain unexplored.
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Also of interest is the unique UScontext. The economic history of US firms generally shows a
slant toward Taylorian principles of management and arm’s-length type of exchanges with
employees (Budd, 2010; Freeman et al., 2007). Firms in the USA have high involuntary turnover
rates, and ‘hire and fire’policies are prevalent; although firms do gain from employee
ownership (r= 0.02), the gains are significantly lower than non-US firms (r= 0.06). However,
the wider the CV for US firms (80% CV: [–0.03, 0.10]) indicates that there could be additional
moderators explaining differences in gains from employee ownership. Such moderators could
include practices that strengthen the bond between employees and firms such as HR practices,
organisational culture and supportive climate, among others.
Modelling for endogeneity in future studies Finally, employee ownership studies are typically
cross-sectional and lack a clear identification strategy. However, about a fifth of the studies in
the current sample use a pre–post design, and the results do not show a difference in estimates
between pre–post and post-only designs. While causality cannot be assumed, pre–post designs
control for selection bias (e.g. high performing firms are more likely to adopt employee
ownership), and the pre–post design provides more reliable inferences by controlling for pre-
adoption performance. The endogeneity stems from both simultaneity and unobservables in
the error term. Firms with higher performance may reach limits to recombining existing
resources and could allocate resources toward enhancing employee participation and human
capital by offering employee ownership. When firm performance increases, employees may
also question whether they are receiving their fair share and may require additional incentives
such as employee ownership; therefore, the possibility exists of reverse causality from
performance to employee ownership. Organisational culture, employee HR practices,
employee commitment and several other factors could affect adoption and the degree of
employee ownership. The endogeneity issue in most of the studies indicates that only
correlation be assumed and not causality. Future studies could identify exogenous events such
as law changes that could provide a robust identification approach.
LIMITATIONS
As with all studies, the present study has several limitations. First, there is a possibility of bias
in sampling bias in sampling where employees in ownership firms are less likely to respond
than employees in non-ownership firms. Among the pool of employees, employees most
influenced by employee ownership may also be more likely to respond. Therefore, selection
bias may exist both at the firm and employee levels. We call on future studies to control for
selection bias effects. Furthermore, because financial outcomes are distant and there remains
a large unexplored black box between employee ownership and performance (Caramelli,
2011), we call on future studies to assess these intervening factors that could explain the
correlational or causal chain between employee ownership and performance.
Second, studies examining factors such as employee participation, autonomy and
motivation were quite limited; therefore, we could not test how these factors and many others
might moderate the overall relationship. It is possible that including such effects could change
the direction or significance of the effects.
Third, although meta-analysis is a powerful tool, it does embody some important
limitations. For example, when there is ambiguity in either the predictor (i.e. employee
ownership) or criterion (i.e. firm performance), the aggregated results of a meta-analysis can
be contaminated by studies and effect sizes that do not represent the true population (Cooper,
2009). There are several competing views on what constitutes firm performance (Mackey et al.,
2007) and what constitutes employee ownership (Kruse et al., 2010). To address the construct
Ernest H. O’Boyle, Pankaj C. Patel and Erik Gonzalez-Mulé
HUMAN RESOURCE MANAGEMENT JOURNAL, VOL ••,NO••,2016 19
©2016 John Wiley & Sons Ltd.
ambiguity, we were very conservative in our approach and only selected studies in which the
variables of interest clearly met our definitions. On the one hand, this reduced excessive
variance because of contamination factors, but on the other hand, it limited our ability to
generalise across all forms of performance (e.g. corporate social performance) and across all
forms of indirect compensation (e.g. profit sharing plans).
A final limitation worth noting is that meta-analyses in micro-oriented fields (e.g.
psychology and organisation behaviour) typically deal with normally distributed data, with
the most common method of analysis being ordinary least squares regression. These two
factors make effect size conversions (e.g. means and standard deviations to correlations) a
straightforward process. Unfortunately, with many firm-level outcomes, this conversion is
problematic for several reasons. First, it is not nearly as stable as skewness. Second, kurtosis
heavily biases transformations that assume normality (Hotelling and Pabst, 1936). Third,
conversion equations for many forms of regression (e.g. Tobit, weighted least squares) are
not available. For these reasons, we were forced to eliminate several studies that did not report
necessary information to conduct the needed transformation into a correlation.
In closing, by drawing on studies from multiple disciplines that include samples from firms
around the world, the present meta-analysis provides more generalizable inferences on the role
of employee ownership on performance.
Notes
1. For brevity, we refer to privately held firms as private firms, and publicly held firms as public
firms.
2. We thank an anonymous reviewer for this suggested typology.
3. However, such benefits as tax breaks have declined in recent years in the USA, and public firms
may not be at the same advantage as they were in 1980s.
4. We thank an anonymous reviewer for this suggestion.
5. We are extremely grateful for the assistance of an anonymous reviewer in identifying additional
sources of data.
6. We thank an anonymous reviewer for suggesting these analyses.
7. We thank an anonymous reviewer for this suggestion.
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Additional Supporting Information may be found in the online version of this article at the
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SUPPORTING INFORMATION
Employee ownership: a meta-analysis
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