Does Employee Ownership Really Make a Difference?

By Godfrey, Joseph E. | The CPA Journal, January 2000 | Go to article overview
Save to active project

Does Employee Ownership Really Make a Difference?

Godfrey, Joseph E., The CPA Journal

The September CPA journal featured a panel discussion on the benefits of using ESOPs in succession and exit strategy planning in closely held businesses.As discussed in the article, the two major benefits Of using an ESOP are 1) the seller gets out tax-free and 2) the principal payments on debt created in the transaction are taxdeductible. Many financial or strategic buyers might still ask,"Does the cost of equity dilution justify sharing the future economic returns on the equity with employee-owners?"

The answer can be found in a study, done at Northwestern University IS J.L. Kellogg Graduate School of Management by Professor Hamid Mehran, now at the Federal Reserve Bank of New York. This study, done under the auspices of Hewitt Associates LLC, looked at both the quantitative and qualitative aspects of the "ownership dynamic. ' The CEO of a Fortune 500 spin-off summarized it best when he said, "Employee-owners see things differently, they take appropriate risks, they do what it takes to make the business grow, they are not satisfied with being average."

The quantitative study looked at the financial performance of 382 companies a period of two years before and four years after adoption of an ESOP. Three hundred three of the cony pines survived the full six-year period of the study.

The study found the following:

Return on assets (ROA) was 2 7')/,) higher for the 382 companies than their industry peers without ESOPs for each year in the four-year period. For the 303 "survivors," the return was 14% greater than the industry average each year over the four years.

Total shareholder return (TSR) in ESOP companies was cumulatively 6.9% higher over the four years than their industry counterparts.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Does Employee Ownership Really Make a Difference?


Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?