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

Nicolas Aubert (), Guillaume Garnotel, André Lapied () and Patrick Rousseau
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Guillaume Garnotel: COACTIS - COnception de l'ACTIon en Situation - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne
Patrick Rousseau: CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - AMU - Aix Marseille Université - UTLN - Université de Toulon

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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 (search for similar items in EconPapers)
Date: 2014-02-03
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01256766v1
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Citations: View citations in EconPapers (15)

Published in Economic Modelling, 2014, ⟨10.1016/j.econmod.2013.12.011⟩

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Journal Article: Employee ownership: A theoretical and empirical investigation of management entrenchment vs. reward management (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01256766

DOI: 10.1016/j.econmod.2013.12.011

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