Beyond the short-term: the effects of broad-based employee ownership on labor productivity in family and nonfamily firms

This study investigates whether broad-based employee ownership (BBEO), in isolation and in conjunction with cash profit sharing (CPS), can enhance labor productivity in family firms over nonfamily firms.

Hypothesis testing was conducted using cross-sectional time-series regression with a matched sample of 393 family and nonfamily firms listed on the US S&P 500 over a five-year timeframe.

Overall, the findings indicate that BBEO does not increase labor productivity more in family firms compared to nonfamily firms in the short term; however, BBEO does enable family firms to experience greater labor productivity relative to nonfamily firms beyond the short term. Moreover, when BBEO is combined with CPS, labor productivity improves more for family firms than nonfamily firms both in the short term and beyond.

While prior studies have relied largely on agency theory, this study contributes to the literature on family firms and employee incentives by being amongst the first to draw upon temporal motivation theory to distinguish between family and nonfamily firms regarding the incentive effect of BBEO on labor productivity.