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Does it pay to be employee-owned? On the performance of knowledge-intensive firms.

Ghimire, Binam

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Abstract

This paper aims to examine the stock market performance of knowledge-intensive employee-owned firms. It constructs a portfolio comprising stocks of employee-owned wealth management companies listed in the UK Employee Ownership Index. A simple equal-weighted portfolio simulation strategy with annual rebalancing is employed and returns are analysed for the period 01.2002-12.2015. The employee-owned firms consistently generate significantly higher returns, averaging 13% per annum. During favourable market conditions, the returns are even significant at 16.40% higher than the market average annual returns. The outperformance persists in single-year and five-year investment periods, full and sub-sample periods, including bullish, stable and challenging economic times, and even at high transaction costs and zero dividends. This superior performance is linked to a positive feedback loop created by homogeneous knowledge-workers who are incentivised to perform better in employee-owned business setting through participative decision-making and exhibiting risk aversion skills. Adoption of the employee ownership model of running a business can be highly rewarding within knowledge-intensive firms. This study emphasises the need for a comprehensive database of employee-owned companies, which is currently lacking in the UK. No prior study could be found to have studied the relationship between employee-owned knowledge-intensive firms and their stock market performance.

Citation

GHIMIRE, B. [2025]. Does it pay to be employee-owned? On the performance of knowledge-intensive firms. Employee relations [online], Ahead-of-print. Available from: https://doi.org/10.1108/ER-01-2024-0046

Journal Article Type Article
Acceptance Date Oct 9, 2024
Online Publication Date Feb 10, 2025
Deposit Date Oct 10, 2024
Publicly Available Date Feb 10, 2025
Journal Employee relations
Print ISSN 0142-5455
Publisher Emerald
Peer Reviewed Peer Reviewed
DOI https://doi.org/10.1108/ER-01-2024-0046
Keywords Employee-ownership; Employee-owned firms; Homogeneous employees; Knowledge-intensive firms; Knowledge workers; Stock market performance
Public URL https://rgu-repository.worktribe.com/output/2516327

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Licence
https://creativecommons.org/licenses/by-nc/4.0/

Copyright Statement
This author accepted manuscript is deposited under a Creative Commons Attribution Non-commercial 4.0 International (CC BY-NC) licence. This means that anyone may distribute, adapt, and build upon the work for non-commercial purposes, subject to full attribution. If you wish to use this manuscript for commercial purposes, please visit Marketplace: https://marketplace.copyright.com/rs-ui-web/mp.




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