Do ESOP companies perform better?

The National Center for Employee Ownership (NCEO), the leading source for research on employee ownership, has over the years compiled a substantial body of research on the relationship between employee ownership and corporate performance. Their conclusion: employee ownership combined with participatory management is a most powerful competitive tool.

A 2006 study they reported on is further compelling evidence to that conclusion. The study by Sam Houston State University professors Robert Stretcher, Steve Henry, and Joseph Kavanaugh looked at 196 publicly traded U.S. ESOP companies during the years 1998 through 2004. Each ESOP company was matched to a comparable non-ESOP company.

The ESOP companies had returns on assets that were higher than the matched non-ESOP companies in all seven years, net profit margins that were higher in all the five years where comparable data were available, and better operating cash flows in three of the five years where data were available. All of these findings were statistically significant (not likely to have occurred at random).

Here is a link to the NCEO’s summary of 21 years of research on employee ownership and corporate performance.