EMPLOYEE STOCK OWNERSHIP AND CORPORATE-CONTROL - AN EMPIRICAL-STUDY

This study reexamines the wealth and corporate control effects of employee stock ownership plans (ESOPs) and finds that, the adoption of an ESOP is in general associated with positive wealth effects. However, the Polaroid court ruling significantly changed the market's perception by enhancing the antitakeover role of ESOPs. A significant negative market response is found only after the court ruling. Analysis of speculation and bid activity initiated after an ESOP adoption shows a significant decline in takeover related activity following the court decision. Regression analysis corroborates this evidence. Consistent with Stulz [Journal of Financial Economics 20 (1988) 25-54] and Harris and Raviv [Journal of Financial Economics 20 (1988) 55-86], the results also suggests a non-monotonic relationship between firm value and managerial ownership. The results support the Scholes and Wolfson [Financial Management 49 (1990) 12-28] hypothesis that ESOPs are not primarily implemented for tax advantages.