Employee ownership: A theoretical and empirical investigation of management entrenchment vs. reward management

Nicolas Aubert (), Guillaume Garnotel, André Lapied () and Patrick Rousseau

Economic Modelling, 2014, vol. 40, issue C, 423-434

Abstract: Employee ownership is often used not only as a reward management tool but also as an entrenchment mechanism. The literature suggests that good managers use employee ownership as a reward management tool, whereas bad managers implement it for entrenchment, thus suggesting the existence of an equilibrium level of employee ownership. The contributions of this paper are both theoretical and empirical. Theoretically, this paper fills a gap in the published research by taking into account both positive and negative outcomes of employee ownership. Our model produces three main conclusions: (i) Low-performing managers use employee ownership as an entrenchment mechanism (ii) that increases the signaling cost of employee ownership for high-performing managers. (iii) We suggest that employee ownership should not be left only to the management's discretion because both types of managers have an incentive to implement employee ownership. Our empirical study investigates how employee ownership affects management tenure. This study takes into account the two main motives for employee ownership examined by the model (i.e., management entrenchment and reward management). We find a positive relationship between employee ownership and management tenure. This result provides new evidence that employee ownership can be used as an entrenchment mechanism.

Keywords: Employee ownership; Corporate governance; Management entrenchment; Reward management (search for similar items in EconPapers)
JEL-codes: G11 G32 G34 J33 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:40:y:2014:i:c:p:423-434

DOI: 10.1016/j.econmod.2013.12.011

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