Graduation Year


Document Type




Degree Granting Department

Business Administration

Major Professor

Scott Besley, Ph.D.

Co-Major Professor

Bill Francis, Ph.D.

Committee Member

Christos Pantzalis, Ph.D.

Committee Member

Philip K. Porter, Ph. D.

Committee Member

Ninon Sutton, Ph. D.


Agency theory, Corporate governance, Layoffs, Internal ownership, Event-study, Total factor productivity, Tobins Q ratio


Finance, economic and management literature document the reduced agency problems, increased productivity, and greater financial benefits that accrue to firms that adopt Employee Stock Ownership Plans, (ESOPs). The literature also documents the increased agency problems, decreased employee productivity, and poor operating performance that usually accompany corporate downsizing activity. To date, none of the studies have examined the effect that downsizing decisions have on companies with existing ESOP plans; this dissertation fills that empirical void. In this study, two essays are presented that examine the effect of corporate downsizing on ESOP versus non-ESOP firms.

In the first essay, I investigate the short-term wealth effects of the downsizing announcement using event study methodology. I find that there is no significant change in the wealth effects for ESOP firms (they are positive, yet small), whereas non-ESOP firms have significantly negative abnormal returns. There is, however, a significant difference in the abnormal returns of ESOP versus non-ESOP firms, where ESOPs have significantly higher abnormal returns. Finally, with respect to wealth effects, I find that downsizing interacts negatively with managerial ownership and with employee ownership, but there is a positive interaction between the ownership of managers and employees.

In the second essay, I examine the long-term employee productivity and financial performance of the downsized firms, as measured by Total Factor Productivity (TFP) and Tobin’s Q, respectively. I find that neither the percentage of employee ownership nor the level of downsizing has an impact on the productivity of the downsizing ESOP firm. However, the level of downsizing exerts a significantly positive impact on the productivity of non-ESOP firms.

With respect to financial performance, the existence of an ESOP plan has a significantly negative influence on the Tobin’s Q of the downsizing firm. Furthermore, the level of downsizing has a significantly negative impact on non-ESOP firms, whereas the financial performance of ESOP firms appear to be unaffected by the level of downsizing. For Tobin’s Q, there is evidence of interaction between employee and managerial ownership for ESOP firms. There is also interaction between managerial ownership and downsizing for the TFP and Tobin’s Q of non-ESOP firms.