Nexus of Employee Stock Ownership with Cost of Capital: Evidence from KSE 100


  • Fareeha Waseem Kinnaird College for Women University, Lahore, Pakistan
  • Syeda Fizza Abbas Kinnaird College for Women University, Lahore, Pakistan
  • Anum Farooq Kinnaird College for Women University, Lahore



Cost of Debt, Agency Conflict, Employee Stock Ownership, Cost of Equity, Cost of Capital


This study investigates the effect of employee stock ownership on a company's cost of capital. It takes employees into great consideration and tries to overcome the agency conflict that exists within the company by adopting the employee's stock ownership plan. The panel data regression is run in order to find out the effect of employee stock ownership on a company’s cost of capital. This study hypothesizes that employee stock ownership will tend to reduce the company's cost of capital, due to a decrease in the cost of equity and debt cost of the corporations. From KSE 100 companies were chosen for our research analysis, the study employs a sample size of 209 companies. 11 years of data were collected (2010-2020), a panel data regression was run due to cross sectional and time-series data. The research showed that there is a substantial impact of employees’ stock ownership on the company's cost of capital, equity cost, and company's debt cost, and a negative relationship exists between the independent and dependent variables. Employee stock ownership increases the company's cost of debt, equity cost and capital cost decreases. The research involves employee stock ownership as the variable because there are few research works yet been conducted especially in Pakistan. It also contributes towards the bond found between ESO and agency cost that how it helps to minimize the cost and benefits to the company and shareholders. This study offers a contribution towards the literature concerning ESO and the company’s capital cost. It is useful for the companies, as this shows that adopting the employee's stock ownership plan reduces the company’s capital cost, cost of debt, and equity as a whole, and most importantly the principal-agent conflict is minimized. The financial companies are fully ignored which may represent different results and may vary according to the sectors as well. The given effect can also be checked by taking stock prices as the dependent variable.

Author Biographies

Fareeha Waseem, Kinnaird College for Women University, Lahore, Pakistan

Lecturer at Department of Accounting and Finance

Syeda Fizza Abbas , Kinnaird College for Women University, Lahore, Pakistan

Head of Department

Anum Farooq, Kinnaird College for Women University, Lahore



Aubert, N., Garnotel, G., Lapied, A., & Rousseau, P. (2014). Employee ownership: A theoretical and empirical investigation of management entrenchment vs. reward management. Economic Modelling, 40, 423-434.

Aubert, N., Kern, A., & Hollandts, X. (2017). Employee stock ownership and the cost of capital. Research in International Business and Finance, 41, 67-78.

Barney, J. B. (1990a). The debate between traditional management theory and organizational economics: substantive differences or intergroup conflict? Academy of Management Review, 15(3), 382-393.

Barney, J. B. (1990b). Employee stock ownership and the cost of equity in Japanese electronics firms. Organization Studies, 11(3), 353-372.

Benartzi, S., Thaler, R. H., Utkus, S. P., & Sunstein, C. R. (2007). The law and economics of company stock in 401 (k) plans. The Journal of Law and Economics, 50(1), 45-79.

Blair, M. M., Kruse, D. L., & Blasi, J. (2000). Employee ownership: an unstable form or a stabilizing force? Available at SSRN 142146.

Blasi, J., Conte, M., & Kruse, D. (1996). Employee stock ownership and corporate performance among public companies. ilr Review, 50(1), 60-79.

Buchko, A. A. (1992). Employee ownership, attitudes, and turnover: An empirical assessment. Human Relations, 45(7), 711-733.

Buchko, A. A. (1993). The effects of employee ownership on employee attitudes: An integrated causal model and path analysis. Journal of Management Studies, 30(4), 633-657.

Campa, D., & Kern, A. (2020). Employee stock ownership and cost of capital: Evidence from the S&P 500. Journal of Corporate Accounting & Finance, 31(3), 150-162.

Chang, S. (1990). Employee stock ownership plans and shareholder wealth: an empirical investigation. Financial Management, 48-58.

Chang, S., & Mayers, D. (1992). Managerial vote ownership and shareholder wealth: Evidence from employee stock ownership plans. Journal of Financial Economics, 32(1), 103-131.

Chaplinsky, S., & Niehaus, G. (1994). The role of ESOPs in takeover contests. The Journal of Finance, 49(4), 1451-1470.

Conte, M. A., Blasi, J., Kruse, D., & Jampani, R. (1996). Financial returns of public ESOP companies: Investor effects vs. manager effects. Financial Analysts Journal, 52(4), 51-61.

Faleye, O., Mehrotra, V., & Morck, R. (2005). When labor has a voice in corporate governance: National Bureau of Economic Research.

Field, A. (2009). Discopering Statistics Using SPSS, Thrid Edition.

Gamble, J. E. (2000). Management commitment to innovation and ESOP stock concentration. Journal of Business Venturing, 15(5-6), 433-447.

Gamble, J. E., Culpepper, R., & Blubaugh, M. G. (2002). ESOPs and employee attitudes. Personnel Review.

Ginglinger, E., Megginson, W., & Waxin, T. (2011). Employee ownership, board representation, and corporate financial policies. Journal of corporate finance, 17(4), 868-887.

Guedri, Z., & Hollandts, X. (2008). Beyond dichotomy: The curvilinear impact of employee ownership on firm performance. Corporate governance: an international review, 16(5), 460-474.

Hair, J. F., Ringle, C. M., & Sarstedt, M. (2011). PLS-SEM: Indeed a silver bullet. Journal of Marketing theory and Practice, 19(2), 139-152.

Ivanov, S. I., & Zaima, J. K. (2011). Analysis of the effects of ESOP adoption on the company cost of capital. Managerial Finance.

Javed, T., & Idris, S. (2018). Impact of employee ownership on an organizational productivity: A mediating role of psychological ownership. Academy of Accounting and Financial Studies Journal, 22(2), 1-12.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.

Kim, E. H., & Ouimet, P. (2014). Broad?based employee stock ownership: Motives and outcomes. The Journal of Finance, 69(3), 1273-1319.

Klein, K. J. (1987). Employee stock ownership and employee attitudes: A test of three models. Journal of applied psychology, 72(2), 319.

Kruse, D. (2002). Research evidence on prevalence and effects of employee ownership. Journal of Employee Ownership Law and Finance, 14(4), 65-90.

Kruse, D., & Blasi, J. (1997). Employee ownership, employee attitudes, and firm performance: A review of the evidence, in the human resources management handbook, Part 1: Greenwich, CT: JAI Press.

Kruse, D. L., Blasi, J. R., & Freeman, R. B. (2012). Does linking worker pay to firm performance help the best firms do even better? : National bureau of economic research.

Kruse, D. L., Freeman, R. B., & Blasi, J. R. (2019). Shared capitalism at work: Employee ownership, profit and gain sharing, and broad-based stock options: University of Chicago Press.

Li, Y., Sun, B., & Yu, S. (2019). Employee stock ownership plan and stock price crash risk. Frontiers of Business Research in China, 13(1), 14.

Pallant, J., & Manual, S. S. (2007). A step by step guide to data analysis using SPSS for windows. SPSS Survival Manual. Open University Press, New York.

Park, S., & Song, M. H. (1995). Employee stock ownership plans, firm performance, and monitoring by outside blockholders. Financial Management, 52-65.

Rauh, J. D. (2006). Own company stock in defined contribution pension plans: A takeover defense? Journal of Financial Economics, 81(2), 379-410.

Rosen, C. M., Klein, K. J., & Young, K. M. (1986). Employee ownership in America: The equity solution: Lexington Books/DC Heath and Com.

Savin, N. E., & White, K. J. (1977). The Durbin-Watson test for serial correlation with extreme sample sizes or many regressors. Econometrica: Journal of the Econometric Society, 1989-1996.

Shivdasani, A. (1993). Board composition, ownership structure, and hostile takeovers. Journal of Accounting and Economics, 16(1-3), 167-198.

Weitzman, M. L. (1986). The share economy: Conquering stagflation. ilr Review, 39(2), 285-290.




How to Cite

Waseem, F. ., Syeda Fizza Abbas, & Anum Farooq. (2022). Nexus of Employee Stock Ownership with Cost of Capital: Evidence from KSE 100. IRASD Journal of Management, 4(1), 38–50.