Employee ownership and firm performance: a meta‐analysis

• Published date: 01 November 2016
• Date: 01 November 2016
• DOI: http://doi.org/10.1111/1748-8583.12115

Employee ownership and firm performance: a

meta-analysis

Ernest H. O’Boyle*, Tippie College of Business,Management and Organizations, The

University of Iowa

PankajC. Patel*, Managementand Operations, VillanovaSchool of Business,Villanova

University

Erik Gonzalez-Mulé, Kelley Schoolof Business, Management and Entrepreneurship,

Indiana University

Human Resource Management Journal, Vol26, no 4, 2016, pages 425–448

Employeeownership has been anarea of significant practitionerand academicinterest for the past fourdecades.

Yet,empirical resultson the relationship between employeeownership and firm performanceremain mixed. To

aggregate findings and provide potential direction for future theoretical development, we conducted a meta-

analysis of 102 samples representing 56,984 firms. Employee ownership has a small, but positive and

statisticallysignificant relation to firm performance (r=0.04). The effect is generally positive forstudies with

different sampling designs (samples assessingchange in performance pre-employee–post-employee ownership

adoptionor samples on firms with employeeownership), differentperformance operationalisation (efficiencyor

growth) andfirm type (publicly held or privatelyheld). Suggesting benefitsof employee ownership in a variety

of contexts,we found no differences in effectson performance in publiclyheld versus privately heldfirms, stock

or stock option-based ownership plans or differences in effects across different firm sizes (i.e. number of

employees).We do find that the effectof employee ownership onperformance has increasedin studies over time

and thatstudies with samples fromoutside the USA reportstronger effects thanthose within. We also findlittle

to no evidence of publication bias.

Contact: Pankaj C. Patel, Villanova University, Management and Operations, Villanova School of

Business, 800 E. Lancaster Avenue, Villanova, PA 19085, USA. Email:pankaj.patel@villanova.edu

Keywords: employee ownership;meta-analysis; firm performance

INTRODUCTION

Shared capitalism refers to a variety of employee ownership plans where a part of

employee compensation and/or wealth is tied to workplace or firm performance

(Freeman et al., 2010). Practitioner interest in this phenomenon has increased over

the past four decades, and according to the National Center for Employee Ownership, as of

2013, 28 million US employees were participating in 11,000 employee ownership plans.

Through such plans, employees are now controlling about 8% of corporate equity in the

USA (http://www.nceo.org/). In Europe, 85% of publicly traded firms have employee stock

ownership plans, and in 2011, 10 million employees in Europe held some form of company

stock. Employeeownership plans have also received broadacademic interest in fields ranging

from strategicmanagement (Jochim, 1979) to organisational behaviour(Lawrence, 1987; Pierce

et al., 1991) and fromlabour economics and finance (Gordonand Pound, 1990) to public policy

(Freeman and Reed, 1983).

* The first two authors contributed equally.

HUMAN RESOURCEMANAGEMENT JOURNAL, VOL26, NO 4, 2016 425

©2016 John Wiley& Sons Ltd

Pleasecite this article in pressas: O’Boyle, E.H.,Patel, P.C. and Gonzalez-Mulé,E. (2016)‘Employee ownershipand firm performance:a meta-analysis’.

HumanResource ManagementJournal 26:4,425–448

doi: 10.1111/1748-8583.12115

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Despite the significant practitioner and academic attention directed to the relationship

between employee ownership and firm performance, empirical findings remain mixed. In his

meta-analysis of 43 studies, Doucouliagos (1995: 58) found that ‘correlations are stronger

among labour-managed firms (firms owned and controlled by workers) than among

participatory capitalist firms [firms adopting one or more participation schemes involving

employees, such as ESOPs (Employee Stock Ownership Plans) or quality circles].’In another

meta-analysis of 27 studies, Kruse and Blasi (1995: 26) concluded that studies on employee

ownership and firm productivity or profitability frequently ‘indicate better or unchanged

performance.’Others have made more recent efforts to summarise the literature (e.g. Blasi

et al., 2003; Kaarsemaker, 2006), but it has been almost two decadessince the last meta-analysis.

And numerous empirical studies have been published since. Calling on the need for a

meta-analysis, critics have questioned whether a small proportion of employee stock

ownershipis efficacious enough to increasefirm performance, whereasothers have highlighted

the negative effectsof employee ownership such as risk aversion and shirking (Freemanet al.,

2010). Clearly, theoretical development on employee ownership is limited and remains

fragmented (Caramelli, 2011); indeed, a meta-analysis could guide future theoretical

development. In reviewing the relationship between employee ownership and firm

performance, Kaarsemaker and Poutsma (2006: 677) commented on the ‘relative weakness of

the resultsfrom empirical research,’whichcalls for a comprehensivemeta-analysis of empirical

studies in this rich, multidisciplinary literature. Thus, because of the mixed findings on the

relationship between employee ownership and firm performance and to provide guidance

for future theoretical development as Caramelli (2011) suggested, we conducted a

comprehensive meta-analysis of all empirical studies on employee ownership published in

the English language until 2013 in all disciplines. The identified empirical studies mostly

examined stock ownership and stock option plans together, but some studies assessed the

effects of these structures separately.

Scholars have stu died employee ownership through t he lenses of agency theory, human

resource (HR) management, organisational behaviour and property rights, among others.

Based on this divers ity of disciplines , we are unable to draw on a cor e theoretical

framework to build our hypotheses. Instead of hypotheses, therefore, we propose research

questions. Based on the number of studies needed for statistical power in a meta-analysis,

we tested several the oretically derived and methodological moderators for which sufficient

numbers of correlations were available. This includes the effects of employee ownership on

firm performance as follows: whether the relationship is stronger in publicly held (or

publicly traded) firms than in privately held firms;

1

whether the effe cts of employee

ownership are lower in samples including pre-employee or pos t-employee owner ship

adoption versus s tudies on employee owner ship without the pr e–post study desig n;

whether employee o wnership affects efficiency mo re than growth; whether the effect s izes

in studies are stronger in firms with stock ownership versus those with stock option plans;

whether effect s are stronger in US fi rms versus non-US f irms; and, finally, whether

percentage ownership or number of employees strengthens the relationship between

employee ownership and firm performance. Finally, we test for publication bias using

Duval and Tweedie’s (2000) trim and fill technique to test whether the journal impact factor

moderates the ESOP–firm performance relation. This effort provides a clearer

understandin g of the relationsh ip between employee o wnership and fir m performance.

We begin by discus sing the types of emp loyee ownership pl ans and recent deve lopments

Employeeownership: a meta-analysis

426 HUMANRESOURCE MANAGEMENT JOURNAL,VOL 26, NO 4, 2016

©2016 John Wiley& Sons Ltd.