Sorting, incentive, and investment effects of employee stock ownership

Kyoung Yong Kim, Pankaj C. Patel and Srikant Devaraj

Journal of Business Research, 2025, vol. 191, issue C

Abstract: Employee ownership literature has made significant advancements over the last four decades. However, whether higher-quality employees are more or less attracted to firms with employee stock ownership plans (ESOP) has remained a long-lasting question since Blasi et al. (1996) raised this self-selection issue. In this study, we carry out two studies with samples of 274 and 56,266 employees respectively in the United States to examine whether higher-quality employees prefer ESOP firms (i.e., the sorting effect) and what its consequences are. We theorize and find that there is a curvilinear relationship between employees’ human capital and their selection of ESOP firms. Specifically, while higher-quality employees tend to opt for ESOP firms, the highest quality employees are inclined to choose non-ESOP firms (Studies 1 and 2). We also find that ESOP firms are positively associated with higher compensation (i.e., the investment effect) as well as higher work effort (i.e., the incentive effect) (Study 2). These findings suggest that employee ownership indeed influences a sorting effect and based on it, the higher-quality employees, not the highest quality, enjoy working in ESOP firms with higher compensation.

Keywords: Employee ownership; Employee stock ownership plan; Sorting effect; Incentive effect; Investment effect (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0148296325001006
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:191:y:2025:i:c:s0148296325001006

DOI: 10.1016/j.jbusres.2025.115277

Access Statistics for this article

Journal of Business Research is currently edited by A. G. Woodside

More articles in Journal of Business Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().