Working Paper: NBER ID: w3094
Authors: Myron S. Scholes; Mark A. Wolfson
Abstract: During the first six months of 1989 U.s. corporations acquired over $19 billion of their own stock to establish employer stock ownership plans (ESOPs). We evaluate the common claims that there exist unique tax and incentive contracting advantages to establishing ESOPs. Our analysis suggests that, particularly for large firms, where the greatest growth in ESOPs has occurred, the case is very weak for taxes being the primary motivation to establish an ESOP. The case is also weak for employee incentives being the driving force behind their establishment. We conclude that the main motivation for the growth of ESOPs is their anti-takeover characteristics.
Keywords: Employee Stock Ownership Plans; Corporate Restructuring; Tax Advantages; Incentives
JEL Codes: G34; H25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Establishment of ESOPs (L26) | Defense against hostile takeovers (G34) |
| Expectation of tax benefits (H20) | Adoption of ESOPs (L26) |
| Operational characteristics of ESOPs (J54) | Unique advantages over other retirement plans (G23) |