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

Ghimire, Binam

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

• Journal Article Type: Article
• Acceptance Date: Oct 9, 2024
• Deposit Date: Oct 10, 2024
• 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