ESOP FIRM PERFORMANCE PRE- AND POST- MARKET PEAK: EVIDENCE FROM RECENT YEARS

Historically, research on ESOP-based firms indicate that such firms outperform non-ESOP comparison firms. The structural characteristics of ESOP investments provide long-term stability in a firm’s investor base. ESOP plans generally impose restrictions on employees’ ability to liquidate their positions, thereby fostering an ownership culture. This is one possible explanation for the observed difference in financial performance between ESOP- and non-ESOP firms. The ownership culture theory suggests that ESOP firms should outperform non-ESOP peers. However, the major studies which support this finding were all performed in the 1990s, a period of dramatically rising markets. This study seeks to determine if the same positive effects for ESOP firms hold in a declining market. The hypothesized finding that ESOP firms outperform non-ESOP peers in both bull- and bear markets would provide evidence supporting the ownership culture hypothesis.