THE CASH FLOW AND INFORMATIONAL EFFECTS OF EMPLOYEE STOCK OWNERSHIP PLANS

The tax, employee benefit, capital structure, and corporate control ef fects of ESOPs are examined by estimating the stock market reaction to ESOP announcements. This is the first empirical examination of the re lationship between computed firm-specific tax savings and firm value, and therefore provides evidence that helps resolve the theoretical dis pute over ESOP tax savings. The results show that investors expect ESO Ps to increase cash flows through tax savings, and to reduce the likel ihood of takeover for companies subject to takeover attempts when ESOP s are announced.