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Employee Ownership and Stock Price Crash Risk

  • 한국재무학회 한국재무학회
Using a large sample of Korea firms, we examine the impact of employee share ownership on future stock price crash risk. We document a significant and negative relationship between employee ownership levels and the likelihood of future stock price crashes. In particular, we find this relationship is only observed for firms listed on KOSDAQ market. Given the voluntary adoption of preferential allocation of employee share ownership for KOSDAQ-listed firms, we interpret that voluntary employee ownership can enhance information transparency. These results hold across different specifications, as well as when using several tests to address the potential endogeneity issue. In addition, we find that the predictive power of employee ownership is enhanced for firms in volatile industries, with high information opacity and low ownership of the largest shareholders in KOSDAQ market. These empirical findings provide strong support for the argument that employee share ownership mitigates the extent to which employees have the potential to extract above-market rents from firms.


Using a large sample of Korea firms, we examine the impact of employee share ownership on future stock price crash risk. We document a significant and negative relationship between employee ownership levels and the likelihood of future stock price crashes. In particular, we find this relationship is only observed for firms listed on KOSDAQ market. Given the voluntary adoption of preferential allocation of employee share ownership for KOSDAQ-listed firms, we interpret that voluntary employee ownership can enhance information transparency. These results hold across different specifications, as well as when using several tests to address the potential endogeneity issue. In addition, we find that the predictive power of employee ownership is enhanced for firms in volatile industries, with high information opacity and low ownership of the largest shareholders in KOSDAQ market. These empirical findings provide strong support for the argument that employee share ownership mitigates the extent to which employees have the potential to extract above-market rents from firms.