DOES EMPLOYEE OWNERSHIP ENHANCE FIRM SURVIVAL?

Rhokeun Park, Douglas Kruse and James Sesil

A chapter in Employee Participation, Firm Performance and Survival, 2004, pp 3-33 from Emerald Group Publishing Limited

Abstract: Research on employee ownership has focused on questions of productivity, profitability, and employee attitudes and behavior, while there has been little attention to the most basic measure of performance: survival of the company. This study uses data on all U.S. public companies as of 1988, following them through 2001 to examine how employee ownership is related to survival. Estimation using Weibull survival models shows that companies with employee ownership stakes of 5% or more were only 76% as likely as firms without employee ownership to disappear in this period, compared both to all other public companies and to a closely matched sample without employee ownership. While employee ownership is associated with higher productivity, the greater survival rate of these companies is not explained by higher productivity, financial strength, or compensation flexibility. Rather, the higher survival is linked to their greater employment stability, suggesting that employee ownership companies may provide greater employment security as part of an effort to build a more cooperative culture, which can increase employee commitment, training, and willingness to make adjustments when economic difficulties occur. These results indicate that employee ownership may have an important role to play in increasing job and income security, and decreasing levels of unemployment. Given the fundamental importance of these issues for economic well being, further research on the role of employee ownership would be especially valuable.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aeapzz:s0885-3339(04)08001-9

DOI: 10.1016/S0885-3339(04)08001-9

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