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The hidden cost of profit sharing on participation in employee stock purchase plans

Jan Christoph Hennig, Rieke Hullmann, Holger A. Rau and Michael Wolff

No 414, University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

Abstract: Many firms use equity-based profit sharing to boost participation in employee stock purchase plans (ESPPs). Using a large panel data set (N=262,824) of a multinational firm, we compare the reactions of former ESPP participants and non-participants to a profit sharing distribution (PSD). We find a dysfunctional effect. Although many former non-participants sign in, almost a similar share of employees leave the ESPP after the PSD. A closer look highlights the importance of social preferences when all employees enjoy profit sharing. Prosocial former participants show a motivational crowding out effect and leave the program, as the equity norm is violated.

Keywords: Employee Stock Purchase Plans; Gift Exchange; Motivational Crowding Out; NormViolation (search for similar items in EconPapers)
JEL-codes: D03 J24 J33 J54 M52 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cwa and nep-hrm
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