Employee Stock Ownership Plans and Corporate Restructuring: Myths and Realities
During the first six months of 1989 U.s. corporations acquired over $19 billion of their own stock to establish employer stock ownership plans (ESOPs). We evaluate the common claims that there exist unique tax and incentive contracting advantages to establishing ESOPs. Our analysis suggests that, particularly for large firms, where the greatest growth in ESOPs has occurred, the case is very weak for taxes being the primary motivation to establish an ESOP. The case is also weak for employee incentives being the driving force behind their establishment. We conclude that the main motivation for the growth of ESOPs is their anti-takeover characteristics.
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$3 million acquire addition after-tax allow alternative amount analysis assets become before-tax rate benefits bonds borrow capital cash flows changes common stock company stock compensation contracting convertible corporation costs debt debt-financed defined contribution plan dividends Economic Effects efficient employees equal equity ESOP loan established Evidence example exclusion financing firm foreign future gains hold immediate allocation loan important incentive income increased interest invest investors issue least lender less leveraged ESOP leveraged-ESOP marginal tax rate measures million Moreover nontax Note Number paid participants particularly payments pension fund pension plan period Policy preferred preferred stock principal programs qualified rate of return reason receive reduced relative Research RESTRUCTURING result retirement risk rules salary Scholes securities shareholders shares structure Tax Act tax advantage tax benefits tax deduction tax rates taxable income terminal voting