Stock Price and Operating Performance of ESOP firms: A Time-Series Analysis  - CLEO Skip to main content


Prior literature suggests that the impact of employee ownership on employee behavior may depend on the financial rewards associated with ownership. As the financial value of ownership accounts increases, employee attitudes become more positive, which, in turn, improves organizational performance. In this paper, we explore this financial perspective of employee ownership by examining the relationship between stock price and operating performance of ESOP firms. Using aggregate quarterly data, we find that large increases in stock prices result in improved operating performance for ESOP firms. Our findings are, however, anomalous for ESOP firms that experience falling stock prices. Contrary to our expectation, these firms show improvement in operating performance. Overall, we provide new evidence that stock return is an important link in the ownership-performance relationship. Corporate planners and public policy makers may assess ESOP’s contribution to corporate performance in relation to company’s stock returns.