Date of Award

1995

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance

First Advisor

William R. Lane

Abstract

This dissertation examines the effects of employee stock ownership plans (ESOPs) on shareholder wealth, corporate control, and insider trading. In the first of three essays, a revision of the asymmetric information hypothesis is applied to the securities issuance structure of the ESOP to provide an explanation of the ESOP announcement's effect on shareholder wealth. Essay two examines the effects of the firm's (and its state of incorporation's) supermajority provisions, level of pre- and post-announcement managerial voting power, and takeover "attractiveness" on the announcement-day reaction. The final essay examines the managers' insider trading activities around the announcement of the ESOP. The first essay provides evidence that for announcements made in the absence of takeover activity, the market's reaction to ESOPs partially structured with previously unissued common stock and convertible preferred equity is significantly and positively affected by the presence of a simultaneous repurchase announcement. In contrast, a similar analysis of ESOPs announced without a simultaneous repurchase finds an insignificant market reaction to ESOPs structured with common stock and a weakly significant and negative reaction to ESOPs structured with convertible preferred equity. This finding is supportive of the revised asymmetric information hypothesis. The results of the second essay suggest that the market discriminates between firms that are attractive and unattractive for takeover. A significant negative market reaction is observed when the "attractive" firms announce an ESOP that increases the managers' voting power from a low to high level of entrenchment. In contrast, insignificant results are found in a similar "low-to-high" examination of unattractive firms. The final essay examines the managers' insider trading activities around the announcement of the ESOP and argues that these trading activities are related to the structure of the ESOP. Insiders significantly reduce the number, and dollar value, of their shares sold in the months immediately surrounding the announcement of ESOPs structured with repurchased equity. Similar results are noted for the sample of ESOPs that experience a significant positive announcement-day reaction.

Pages

148

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