An Empirical Analysis of the Relationship between Employee Ownership and Employment Stability in the US: 1999–2011

Do firms with employee ownership (EO) programs exhibit greater employment stability in the face of economic downturns? In particular, are firms with EO programs less likely to lay off workers during negative shocks? In this article, we examine the relationship between EO programs and employment stability in the United States using longitudinal Form 5500‐CompuStat matched data on the universe of publicly traded companies during 1999–2011. We examine how firms with EO programs weathered the recessions of 2001 and 2008 in terms of employment stability relative to firms without EO programs, and also whether such firms were less likely to lay off workers when faced with negative shocks more broadly. In our econometric analyses, we use a rich array of measures of EO at firms, including the presence of EO stock in pension plans, the presence of employee stock ownership plans (ESOPs), the value of EO stock per employee, the share of the firm owned by employees, the share of workers at the firm participating in EO and the share of workers at the firm participating in ESOPs. We also consider both economy‐wide negative shock measures (increases in the unemployment rate, declines in the employment‐to‐population ratio) and firm‐specific negative shock measures (declines in firm sales, declines in firm stock price). Our results indicate that EO firms exhibit greater employment stability in the face of economy‐wide and firm‐specific negative shocks.     

The Determinants of Stock Option Compensation: Evidence from Finland

A new, long, and rich panel data set consisting of all Finnish publicly traded firms is used to study how firm characteristics and stock market developments influence the adoption and targeting of stock option compensation. Stock option adoption is found to be a procyclical phenomenon. Findings from firm‐level econometric analysis often corroborate those based on U.S. data, but important differences also emerge. Findings include: (i) firms with higher market value per employee are more likely to use stock option compensation; (ii) share returns from the past year affect the adoption of targeted stock options, but not broad‐based plans; (iii) our results are consistent with the hypothesis that selective and broad‐based plans arise as solutions to differing monitoring difficulties. Broad‐based schemes are observed when production is human capital‐intensive and employee performance is hard to monitor, while selective schemes are adopted when ownership is dispersed and therefore owners may have weak incentives to monitor management.     

Board‐Level Employee Representation (BLER) and Firms’ Responses to Crisis

Short: We hypothesize that companies with board‐level employee representation (BLER) experience a lower probability of crisis‐induced dismissals than other firms. Theoretically, we link this effect to the employee directors’ ability to reduce the information asymmetry and moral hazard in employee–employer contracting, thereby facilitating the implementation of labor‐cost adjustments that are an alternative to workforce dismissals. We confirm our hypotheses by analyzing the behavior of Scandinavian public corporations with/without employee directors during the Great Recession.     

Investment opportunities and R&D investments in family and nonfamily firms

The firm’s investment opportunity set (IOS) reflects the prospective growth opportunities related to physical and human capital investments. IOSs are largely firm specific, embedded in assets-in-place, or generated by experience curves, learning-by-doing, and other similar phenomena. However, the value of an IOS can be destroyed if a firm does not exercise the option to invest. In this study, we theorize that a firm’s ability to invest in R&D is conditional on the availability of a favorable IOS. We test our theoretical propositions in the European business environment using a sample of large publicly traded firms with concentrated ownership. Our findings support the notion that the IOS is a significant determinant of corporate R&D investments, but the magnitude of this effect depends on the identity of the ultimate owner. Specifically, the sensitivity of R&D investments of family- and state-owned corporations is higher to favorable IOS than that of widely held corporations, suggesting these firms are more responsive to favorable IOS than others. By introducing the IOS dimension, our results have interesting implications for both theory and practice.     

Information Sharing of Sensitive Business Data with Employees

This study reexamines the determinants and consequences of publicly traded manufacturing firms sharing sensitive business data with their producation employees. Using more detailed information sharing variables, we find that providing a variety of types of information is associated with higher compensation, that firms are less likely to share relatively more senistive information with employees, and that sharing future market strategies is negatively related to various measures of firm profitability. The implications for firm and public policies are also discussed.     

Levels of Employee Share Ownership and the Performance of Listed Companies in Europe

We investigate the effects of employee share ownership (ESO) on three alternative measures of firm performance in a panel of 1,115 companies from the five largest European economies. The results show that firms with ESO enjoy significantly higher levels of capital market performance and of accounting performance than firms without ESO; however, the marginal effects of ESO are declining with increasing ESO levels. ESO does not have a clear effect on productivity. These findings hold for all countries except Spain. Variations in ESO levels within firms over time exert few performance effects.     

Global Financial Integration and Real Estate Security Returns

Have globalization and increasing economic and financial integration affected the rates of return of publicly traded real estate companies around the world? Using a set of multifactor models for annual data for 946 firms from 16 countries over the sample period, 1995–2002, we estimate the impact of a country's economic openness on returns of publicly traded real estate firms, controlling for the effects of global capital markets, domestic macroeconomic conditions and firm‐specific variables. We find that a country's real estate security excess (risk‐adjusted) returns are negatively related to its openness. The results are robust across different multifactor model specifications and are a testament to increasing global financial integration and its interplay with the real estate sector.     

The use of an interim CEO during succession episodes and firm performance

Our study investigates an unexplored succession process—interim CEO successions. We define an interim CEO succession as a case where the title of chief executive officer is vacated by the incumbent and the board of directors has not announced a permanent successor, but instead designates a particular individual as ‘interim CEO,’ or ‘acting CEO,’ or ‘CEO until a permanent successor is named.’ Theory predicts that interim CEO successions will lead to the type of disruption that can harm firm performance, even after a permanent successor is appointed. Our data show that interim CEO succession processes are widely employed by publicly‐traded U.S. firms, and that they are associated with lower performance during the period in which the interim serves. However, whether the interim CEO also simultaneously serves as chairman moderates the impact of this type of succession on firm performance, as well as on long‐term firm survival. Copyright © 2009 John Wiley & Sons, Ltd.     

Slack resources,firm performance,and the institutional context: Evidence from privately held European firms

Research summary : Integrating the behavioral and institutional perspectives, we propose that a country's formal institutions, particularly its legal frameworks, affect managers' deployment of slack resources. Specifically, we explore the moderating effects of creditor and employee rights on the performance effects of slack. Using longitudinal data from 162,633 European private firms in 26 countries, we find that financial slack enhances firm performance at diminishing rates, whereas human resource (HR) slack lowers performance at diminishing rates. However, financial slack has a more positive effect on firm performance in countries with weaker creditor rights, whereas HR slack has a more negative effect on performance in countries with stronger employee rights. The results provide a richer view of the relationship between slack and firm performance than currently assumed in the literature. Managerial summary : A key dilemma managers often encounter is whether, on the one hand, they should build in excess resources to buffer their firms from internal and external shocks and to pursue new opportunities or whether, on the other hand, they should develop “lean” firms. Our study suggests that excess cash resources—which are usually viewed as easy to redeploy—benefit firm performance, especially when firms operate in countries with weaker creditor rights. However, excess human resources—which are usually viewed as more difficult to redeploy—hamper firm performance, particularly when firms operate in countries with stronger labor protection laws. Thus, the management of slack resources critically depends on the characteristics of these resources (e.g., redeployability) and the institutional context in which managers operate. Copyright © 2016 John Wiley & Sons, Ltd.     

Entrepreneurial Orientation and Firm Performance: Drawing Attention to the Senior Team

Prior studies have argued entrepreneurial orientation (EO) plays an important role in explaining firm performance. This study aims to assess how senior team attributes moderate the relationship between EO and firm performance. For this purpose, an attention‐based perspective is adopted, focusing on attention scope as well as distributed and situated attention. By considering the role of senior team heterogeneity in broadening the attention scope of senior teams and the role of senior team shared vision in aligning distributed attention across organizational functions, this research investigates how senior teams may enhance the value‐creating potential of EO. In addition, we assess situated attention by including the notion of environmental dynamism and examining whether the role of the senior team attributes is contingent upon environmental conditions. Using a time‐lagged sample of 346 firms operating in various industries, we find that senior team heterogeneity helps firms to leverage their EO and improve their performance. Moreover, once environmental conditions are taken into account, results indicate that the absence of heterogeneity at senior team level may be particularly detrimental for firms operating in stable environments. The direct moderating effect of shared vision on the relationship between EO and performance is not substantiated. However, senior team shared vision has a positive impact for firms operating in dynamic environments, providing a premium for firms aiming to realize the inherent value of EO. Our research provides important implications for senior teams aiming to leverage their EO into increased firm performance. Evidence shows that while a heterogeneous team composition and senior team shared vision may provide several benefits, these advantages may fluctuate across environmental conditions.     

The Evolution of Earnings Volatility During and After the Great Recession

This paper explores how men's and women's earnings volatility evolved during and after the Great Recession, the most severe downturn of the postwar era. Using matched March Current Population Survey data, I find that earnings volatility rose considerably after the Great Recession began and, particularly for men, the volatility increase was as large as in the severe recession of the early 1980s. These findings update the evidence on the counter‐cyclicality of earnings volatility. I show that such counter‐cyclicality is due mainly to counter‐cyclical volatility in annual hours of work. In turn, the counter‐cyclical volatility in work hours appears mainly among workers who experience unemployment.     

AN EVOLUTIONARY PERSPECTIVE ON DIVERSIFICATION AND CORPORATE RESTRUCTURING: ENTRY,EXIT, AND ECONOMIC PERFORMANCE DURING 1981–89

This study proposes a theoretical perspective that firms engage in continuous search and selection activities in order to improve their knowledge base and thereby improve their performance. This general framework is applied to the context of corporate evolution. Entry and exit activities are understood as search and selection undertaken by the firm to improve their performance. One of the compelling features of this framework is that firms learn from their past entry experience and approach the next entry in a more focused and directed manner over time. Also, firms acquire additional knowledge from each entry event while applying their existing knowledge base. With a longitudinal (1981–89) data base on entry and exit activities of all publicly traded manufacturing firms in the United States, this study shows that applicability of the firm's knowledge base plays an important role in predicting which businesses a firm enters or exits. Firms sequentially enter businesses of similar human resource profiles and firms are more likely to divest lines of business of different profiles. Corporate-level analysis shows that such well-directed entry and exit contribute to the improvement of a firm's profitability.     

Sorting things out: valuation of new firms in uncertain markets

New business models combined with a lack of objective operating data result in significant information asymmetry and uncertainty in the valuation of new firms in emerging markets. Information asymmetry increases the risks of both adverse selection and moral hazard. When traditional differentiators of firm quality are lacking, such as in emerging economic sectors, markets may turn to secondary information sources to filter and sort firms. We investigate the roles played by observable corporate governance characteristics as indirect indicators of new firms' potential qualitative differences. Markets may sort firms based on such characteristics because they are perceived to be correlated with desired but unobservable characteristics and actions and they lower the risks of both adverse selection and moral hazard. Our study of publicly traded U.S. Internet firms found that firm market valuation was strongly associated with corporate governance characteristics (e.g., executive and director stock‐based incentives, institutional and blockholder stock ownership, board structure, and venture capital participation). In addition, firm age moderated how markets used some quality proxies to determine firm valuation during the post‐IPO period. Copyright © 2003 John Wiley & Sons, Ltd.     

Corporate Governance and Performance in Publicly Listed,Family-Controlled Firms: Evidence from Taiwan

Using a multi-industry dataset of 228 firms listed on the Taiwan Stock Exchange (TSE) this paper analyses the effects of ownership structure and board characteristics on performance in large, publicly traded firms that are controlled by founding families. After taking account of possible endogeneity problems, we do not find that family control is associated with performance measured in terms of accounting ratios, sales per issued capital, earnings per share and market-to-book value. However, share ownership by institutional investors, and foreign financial institutions in particular, is associated with better performance. Our results indicate that board independence from founding family and board members’ financial interests have a positive impact on performance.     

Married to the firm? A large‐scale investigation of the social context of ownership

Research summary : Using a large sample of private firms across Europe, we examine how the social context of owners affects firm strategy and performance. Drawing on embeddedness theory and the institutional logics perspective, we argue that embeddedness in a family, in particular the nuclear family, can strengthen identification and commitment to the firm, but can also induce owners to behave more conservatively. Consistent with this argument, we find that family‐owned firms have higher profit margins, returns on assets, and survival rates compared to single‐owner or unrelated‐owners' firms, but also invest and grow more slowly, hold greater reserves of cash, and rely less on external debt. These differences are most pronounced when the two largest shareholders are married. Our results highlight the key role of marital ties in explaining differences in behavior and performance among firms. Managerial summary : Despite the prevalence of the married‐couple ownership structure in firms, little research has been dedicated to understanding how these firms are managed and perform. We examine the behavior and performance of firms owned by married couples in a large panel of closely held Western European firms. We find that married‐owner family firms are managed more conservatively relative to firms with unrelated owners and even to other family‐owned firms. In particular, married‐owner family firms invest and grow more slowly and rely less on external finance. However, they also exhibit greater performance stability and higher profitability. Our findings suggest that social relationships among owners have a large impact on firm strategy and performance, and highlight some potential trade‐offs to performance when married couples control firms. Copyright © 2015 John Wiley & Sons, Ltd.     

How Much Does Ownership Form Matter?

Research summary : Previous studies have emphasized firm and industry effects on variation in firm performance, but the relationship between forms of ownership and firm performance has been the focus of limited research. This article examines the extent to which ownership form (i.e., public or private ownership) and ownership structure (including diffused ownership and blockholding) affect firm performance. The results of an analysis of 30,525 European Union (EU) firms indicate that form of ownership is an important explanatory factor in the difference in performance among firms. These results underscore the need to study firms characterized by different ownership arrangements and to provide empirical evidence for the study of firm ownership in strategic management. Managerial summary : Motivated by growing evidence on the involvement of different types of owners in the strategies of firms, we studied the extent to which a firm's ownership form (type of legal incorporation, such as public and private ownership forms) and ownership structure (diffused ownership and blockholding) affect its performance. Our study of more than 30,000 firms from the European Union shows that ownership form differences explain some of the performance differences between firms. Our results also indicate that firms with different ownership forms are differently affected by their competitive environment. Overall, the study suggests that choosing the right ownership form can have important strategic consequences. Copyright © 2017 John Wiley & Sons, Ltd.     

Who leaves,where to,and why worry? employee mobility,entrepreneurship and effects on source firm performance

We theorize that the value provided by the firm's complementary assets has important implications for the exit decisions of employees and their subsequent effects on the firm's performance. Using linked employee‐employer data from the U.S. Census Bureau on legal services, we find that employees with higher earnings are less likely to leave relative to employees with lower earnings, but if they do, are more likely to create a new venture than join another firm. Employee entrepreneurship has a larger adverse impact on source firm performance than moves to established firms, even controlling for observable employee quality. Our findings suggest that in knowledge intensive settings, managers should focus on tailoring compensation packages to help minimize the adverse impact of employee entrepreneurship, particularly among high performing individuals. Copyright © 2011 John Wiley & Sons, Ltd.     

Whom are you promoting? Positive voluntary public disclosures and executive turnover

Research summary: This paper uses signaling theory to bring together two complementary research streams that have largely ignored each other: strategic human resource management and media relations management. We argue that when publicly traded firms voluntarily and publicly disclose positive information about their value creation and appropriation activities, they also send positive signals to managerial labor markets regarding executives' capabilities. Accordingly, we hypothesize a positive association between public disclosures and voluntary executive turnover. An analysis of pharmaceutical and communications equipment firms from 1990 to 2004 supports this prediction, underscoring the need to understand better the effects of voluntary public disclosures on a firm's ability to protect its human capital. More generally, our results highlight the importance of considering the impact of a single signal on multiple receivers. Managerial summary: Given the organizational benefits of positive media coverage, the considerable effort that firms put into managing their image in the media is not surprising. We argue and show, however, that when a firm enhances its public image it also improves its executives' positions in the managerial labor market and, by so doing, increases their likelihood of voluntarily leaving the firm. In particular, we find that corporate press releases, an important mechanism for managing information released in the public domain to signal a firm's competitive advantages, may result in unintentional loss of senior management talent. This trade‐off suggests that firms should increase coordination between their strategy, human resources, and corporate communications/investor relations departments to ensure that they collectively weigh the benefits and costs of publicly disclosing value‐relevant information. Copyright © 2015 John Wiley & Sons, Ltd.     

Whose Innovation Performance Benefits More from External Networks: Entrepreneurial or Conservative Firms?

The primary contribution of this research is positing and empirically supporting the proposition that learning through external networks disproportionately benefits conservative, risk‐averse firms. The construct, entrepreneurial orientation (EO), is used to discriminate conservative, risk‐averse firms from proactive, risk‐seeking firms. Organizational learning theory and social capital theory are employed to support our hypotheses. Based on a study of 1978 U.S. firms, the paper suggests that the utilization of external networks (i.e., the process of learning from information, perspectives, and insights embedded in external networks) may act as a primary driver for innovation for those firms that are either not inclined and/or do not have the capabilities to adopt entrepreneurial culture. Specifically, weak EO firms' innovation performance benefits from utilizing external networks more than strong EO firms'. This research also tests for the moderating role of firm size and finds that the negative moderating effect of EO on the external network utilization–innovation performance relationship is more pronounced in small and medium sized enterprises (SMEs) than large firms.