Employee Stock Ownership Programs (ESOPs) have long been promoted as a motivational tool: employees become profit-minded owners. Latterly, however, more ESOPs are being used as part of a takeover defense: here the ESOPs main purpose is to put more company stock in friendly hands-the employees-who, like existing management, could suffer layoffs, etc. in a hostile takeover. We find that, as a group, only the takeover-related ESOPs are associated with increased leverage (itself a takeover defense). Non-target firms show no long-term increase in debt-to-assets. We find little evidence to support the motivation hypothesis: while actual labor costs are lower for ESOP firms, after industry-adjusting they tend to be unaffected or higher. We find that a few measures of firm financial performance [return-on-equity (ROE), return-on-assets (ROA), net profit margin (NPM)] do improve significantly, but this appears to be largely a short-term effect. Industry-adjusted holding period returns appear to be unaffected by the ESOP; however, ESOP firms that leverage show evidence of long-term market underperformance. We conclude that ESOPs provide, at best, only a short-term boost to corporate performance. Copyright © 2000 John Wiley & Sons, Ltd.

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In recent years many shareholders have voted to amend their corporate charters to decrease the likelihood of a hostile takeover. Critics of antitakeover amendments argue that by sheltering management from the market for corporate control, management may become entrenched and be less likely to act in the best interest of shareholders. The counter argument holds that the threat of a hostile takeover and possible job loss may move management toward “short‐sighted” decision making. In this study we test the hypothesis that, upon passage of antitakover amendments, managers adopt a longer‐term view with respect to capital expenditures and research and development. Empirical results support the hypothesis, as both capital expenditures and research development display significant increases relative to the year of enactment.

The excess returns associated with repurchase announcements are viewed largely as a reaction to management's statement that the firm's shares are underpriced; management's signal provides new information that enhances the firm's market value. Although earlier studies have found the excess return to be closely related to the premium set by managment, other factors play a part in determining both the market reaction and the premium level set by management. Among these factors ar relative market capitalization, holdings by institutions, immediate alternative uses for cash, level of insider control, recent stock price performance, relative size of the tender offer, and the resultant change in the firm's capital structure.

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