EMPLOYEE STOCK OWNERSHIP AND CORPORATE-CONTROL - AN EMPIRICAL-STUDY

This study reexamines the wealth and corporate control effects of empl oyee stock ownership plans (ESOPs) and finds that, the adoption of an ESOP is in general associated with positive wealth effects. However, t he Polaroid court ruling significantly changed the market's perception by enhancing the antitakeover role of ESOPs. A significant negative m arket response is found only after the court ruling. Analysis of specu lation and bid activity initiated after an ESOP adoption shows a signi ficant decline in takeover related activity following the court decisi on. Regression analysis corroborates this evidence. Consistent with St ulz [Journal of Financial Economics 20 (1988) 25-54] and Harris and Ra viv [Journal of Financial Economics 20 (1988) 55-86], the results also suggests a non-monotonic relationship between firm value and manageri al ownership. The results support the Scholes and Wolfson [Financial M anagement 49 (1990) 12-28] hypothesis that ESOPs are not primarily imp lemented for tax advantages.