Does Employee Ownership Really Boost Performance?

This paper uses a representative sample of French companies to investigate how employee ownership influences business performance. A key focus is to determine whether the impact is linear and whether it varies with the proxy used for company outcomes. Empirical results unanimously point to a significant non-linear influence by employee shareholding on company performance, which declines when employee ownership is low or high, but rises when it is in the mid range. Accordingly, companies should consider implementing plans that promote employee shareholding as a way to enhance motivation and commitment and so improve performance, while bearing in mind that ownership should not exceed a certain threshold to avoid potential drawbacks. Investors should target companies with medium levels of employee ownership as they are likely to be more profitable. The paper’s findings are consistent with Herzberg’s two-factor theory of hygiene and motivator factors, suggesting that share ownership plans alone are not sufficient to promote employee satisfaction, commitment and motivation, but should be combined with other factors to build success. Companies and investors alike can draw useful insights from this research.
JEL Codes: G23; G32; G34.
Keywords: Corporate Governance; Employee Ownership; Performance; Panel Data.