Developing an ownership culture with Employee Developing an ownership culture with Employee stock purchase plans: Evidence from Francestock purchase plans: Evidence from France

Nicolas AUBERTNicolas AUBERT

Employee Ownership Research Network (EORN)Employee Ownership Research Network (EORN)

IAE Aix-en-ProvenceIAE Aix-en-Provence

Paul Cezanne UniversityPaul Cezanne University

– – Aix Marseille IIIAix Marseille III

IntroductionIntroductionAn ESPP, what for?An ESPP, what for?

Raise moneyRaise money Communicate on corporate strategy with employeesCommunicate on corporate strategy with employees Strengthen corporate culture (M&A)Strengthen corporate culture (M&A)

How to measure the success of an ESPPHow to measure the success of an ESPP Workforce participation proportion (% of the workforce)Workforce participation proportion (% of the workforce) Proportion of the issued equity subscribed by the employees (% of the Proportion of the issued equity subscribed by the employees (% of the

equity issued) => total amount raised equity issued) => total amount raised

The French context is favourable to EOThe French context is favourable to EO 371 ESPPs since 1997 (French market authority)371 ESPPs since 1997 (French market authority) The 30/12/2006 bill on employee ownership The 30/12/2006 bill on employee ownership

Research question: What leads to an ESPP’s success?Research question: What leads to an ESPP’s success?

1 - Employees’ investment decision about 1 - Employees’ investment decision about their company’s sharestheir company’s shares

Investment decision making theory Investment decision making theory (Markovitz, Merton, Samuelson, Modigliani Becker)(Markovitz, Merton, Samuelson, Modigliani Becker)

Hypothesis:Hypothesis: employees act like rational investor employees act like rational investor Employees’ characteristicsEmployees’ characteristics

Risk aversionRisk aversionTotal wealth & wealth’s components (Salary,Estate property,Human capital)Total wealth & wealth’s components (Salary,Estate property,Human capital)AgeAge

Firm’s characteristicsFirm’s characteristicsExpected returns and standard deviationExpected returns and standard deviationBeta coefficientBeta coefficient

Behavioural decision making Behavioural decision making (Kahneman & Tversky, Thaler, Benartzi)(Kahneman & Tversky, Thaler, Benartzi)

Hypothesis:Hypothesis: employees are affected by cognitive biases employees are affected by cognitive biases Employees’ characteristicsEmployees’ characteristics

Framings effectsFramings effectsEndowment effectEndowment effect

Firm’s characteristicsFirm’s characteristicsPast returnsPast returnsEndorsement effectEndorsement effect

2 – Data collection and methodology2 – Data collection and methodology

DataData 14 experts supervising ESPPs of 32 listed firms in 24 sectors…14 experts supervising ESPPs of 32 listed firms in 24 sectors… … … working in a top 5 employee savings management company working in a top 5 employee savings management company

MethodologyMethodology Qualitative: semi-structured interviewsQualitative: semi-structured interviews Content analysisContent analysis

Coding techniques: categories and sub-categories are createdCoding techniques: categories and sub-categories are created

Frequencies are reportedFrequencies are reportedHypothesis:Hypothesis: the repetition of words or expressions reveals the centres of interest and the repetition of words or expressions reveals the centres of interest and the preoccupations of the actors the preoccupations of the actors

3 - Results3 - Results

CategoriesCategories

0% 5% 10% 15% 20% 25%

Percentage of citations

Payment facilit ies

Discount

Communication

Inflows' origin

ESPP'S characteristics

Leveraged fund

Cate

gorie

s

3 – Results (2)3 – Results (2)Sub-categoriesSub-categories

Leveraged fundsESPP's

characteristics Inflows' originDiscount on share price

Communi-cation

Payment facilities

Employees' characteristics Complex

Gain sharing bonuses Twenty percent

Communi-cation

Subcontracting bank

CostEmployer's

contributionsProfit sharing

bonuses Discount   Credit

Complexity Participation rate       Withdrawal

Leveraged funds Frequency      Payment facilities

Capital guaranteed funds Date        

4 – Discussion and conclusion4 – Discussion and conclusion

Main resultsMain results Emphasis on management’s commitment to Employee ownershipEmphasis on management’s commitment to Employee ownership

Offering an ESPP shows company’s commitmentOffering an ESPP shows company’s commitmentCommunication and pedagogyCommunication and pedagogy

Importance of financial incentives to stimulate participationImportance of financial incentives to stimulate participationBonuses (discount or free credit)Bonuses (discount or free credit)Relax short term liquidity constraint (leveraged funds or ESPP’s date)Relax short term liquidity constraint (leveraged funds or ESPP’s date)

The study generates testable propositionsThe study generates testable propositions

LimitsLimits Sample: experts from one employee savings management companySample: experts from one employee savings management company

Future researchFuture research Quantitative testQuantitative test

Marginal sub-categories creation and Marginal sub-categories creation and theoretical saturationtheoretical saturation

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100

200

300

400

500

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Interviewees

Sub-

cate

gorie

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Saturation

“An adequate sample is determined by the judgment of the researcher, but occurs when further sampling fails to reveal additional categories” (Glaser & Weber, 2004)