Direct Employee Stock Ownership: An Empirical Investigation

Many companies have acted to increase direct stock ownership among their employees. For most firms, these actions have not resulted in major changes in the ownership structure of the firm. However, from a personal portfolio standpoint, the typical level of employee stock ownership appears appreciable. The level of individual ownership is negatively related to the standard deviation of stock returns and positively related to the individual's wealth, education and years of employment with the firm. Several arguments are made for why incentive effects associated with stock ownership should not be ruled out based on traditional free-rider arguments without additional theoretical and empirical analysis.