Study Shows Broad Ownership Helps Stabilize IPO Companies

A 1997 study by Theresa Welbourn at Cornell University has found that companies that do an initial public offering and offer stock ownership to most or all employees are more likely to survive than companies with narrower ownership. Welbourn analyzed the 128 non-financial goods-producing companies that initiated an IPO in 1988 for which complete data were available. She found that by 1993, 40% of the companies were either out of business or absorbed into another entity. The data showed that broad employee ownership through stock options, ESOPs, or other plans was significantly (in the statistical sense of the term; that is the results are not likely to be random) correlated with the likelihood of survival, while companies with executive ownership only were neither more nor less likely to survive. The data do not allow us to say, however, that the employee ownership group were "x%" more likely to survive.

The data also show that there is no relationship between broad employee ownership and stock price, one way or the other, but that there is a large and negative correlation between CEO ownership and stock price and a negative correlation between executive ownership in general and stock price.

Welbourn's data indicate that the median percentage ownership by executives was 15.6%, by executives as a group 38.3%, and by broad-based plans as just .61%.