Employee participation in employee stock ownership plans: Cross‐level interaction effects of institutions and workgroup behavior

• Author: Ulrike Zschoche,Michael Wolff,Jana Oehmichen
• Published date: 01 September 2018
• DOI: http://doi.org/10.1002/hrm.21885
• Date: 01 September 2018

ORIGINAL ARTICLE

Employee participation in employee stock ownership plans:

Cross-level interaction effects of institutions and workgroup

behavior

Jana Oehmichen

1

| Michael Wolff

2

| Ulrike Zschoche

2

1

University of Groningen, Groningen, The

Netherlands

2

University of Goettingen, Göttingen,

Germany

Correspondence

Jana Oehmichen, University of Groningen,

Nettelbosje 2, 9747 AE Groningen, The

Netherlands.

Email: j.d.r.oehmichen@rug.nl

In this multilevel study, the authors investigate the influence of country-level formal institu-

tions and workgroup behavior on foreign subsidiary employees' participation in employee stock

ownership plans (ESOPs). Based on the perspectives of bounded rationality, transaction cost

theory, and psychological ownership, the authors argue that weak formal institutions restrain

multinational enterprises from effectively implementing ESOPs due to reduced employee par-

ticipation. However, the authors expect that workgroup behavior—more specifically, the partici-

pation of the workgroup's members and superiors in ESOPs—has a positive influence on

employees' ESOP participation. Furthermore, the authors analyze whether cross-level effects

of institutions and workgroup behavior function as substitutes or complements. They empiri-

cally examine the ESOP participation of 185,291 foreign subsidiary employees in 28 countries.

The results confirm the hypotheses about direct effects of weak institutions and workgroup

behavior and additionally provide support for a complementary relationship between institu-

tions and workgroup behavior.

KEYWORDS

bounded rationality, employee stock ownership plan (ESOP), institutional context, multilevel

analysis, psychological ownership, transaction cost theory

1|INTRODUCTION

The introduction of employee stock ownership plans (ESOPs) posi-

tively affects firm performance (Kalmi, Pendleton, & Poutsma, 2005;

Sesil & Lin, 2011), increases employees' levels of productivity

(Pendleton & Robinson, 2010) and affective commitment (Bayo-

Moriones & Larraza-Kintana, 2009), and reduces employee turnover

(Sengupta, Whitfield, & McNabb, 2007) and absenteeism (Brown,

Fakhfakh, & Sessions, 1999). For multinational enterprises (MNEs)

seeking to improve their business success, ESOPs represent an inter-

esting human resource (HR) practice because employee fluctuation,

for example, is a common problem for subsidiaries of MNEs (Zheng &

Lamond, 2010). The effectiveness of an ESOP depends on the will-

ingness of employees to participate. Researchers have begun to

develop insights into individual- and firm-level effects that are rele-

vant to employees' participation in ESOPs (Babenko & Sen, 2014;

Caramelli & Carberry, 2014). However, we argue that research has

overlooked potential participation determinants at two major levels:

the workgroup level, represented by units of colleagues to which

employees feel cognitively close (Zhang, Chen, Chen, Liu, & Johnson,

2014), and the country level, represented by country-level institu-

tions such as regulatory systems and mechanisms for contract

enforcement (Miller, Lee, Chang, & Le Breton-Miller, 2009). We

intend to fill this gap by (a) arguing that weak host-country formal

institutions can prevent MNEs from effectively implementing ESOPs,

(b) arguing that the participation behavior of workgroup members

affects effective ESOP implementation, and (c) investigating how

county-level institutions and workgroup-level mechanisms interact to

influence effective ESOP implementation.

Stock-purchase plans are the most prevalent form of ESOP

(Rénaud, St-Onge, & Magnan, 2004). With stock plans, “workers can

purchase, under favorable terms, common shares of the firm within a

given time frame and at a given price, to be paid immediately or in

installments”(Rénaud et al., 2004, p. 121). We will follow this

DOI: 10.1002/hrm.21885

Hum Resour Manage. 2018;57:1023–1037. wileyonlinelibrary.com/journal/hrm © 2017 Wiley Periodicals, Inc. 1023