The effect of adoption of employee share ownership plans on financial performance of firms listed at the Nairobi Securities Exchange
Abstract
Employee Share Ownership Plans (ESOP) has its origins in the United States of
America (Hallock et al, 2003). Firms adopt ESOP to encourage workers to share in
the capital of the firm through stock ownership, thus increasing employee
organizational commitment. The use of ESOPs in Kenya has been on the rise leading
to its recognition in Kenya under Section 5 of the Income Tax Act and as investment
vehicles under the Capital Markets Act.
Studies conducted elsewhere in the world indicated that the effect of ESOP adoption
had mixed results on the financial performance of firms. The objective of the study
was to establish the effect of ESOP adoption on the financial performance of firms in
Kenya. Few studies have been conducted in this area in Kenya.
The study used secondary data of firms listed at the NSE from various industries and
sectors. Specifically the study used the annual reports and financial statements of
listed firms at the NSE. The pre and post ESOP adoption ROA was calculated. The
pre adoption ROA was then projected over a five year period. The resulting projected
ROA was compared with the post adoption ROA using paired t test at 0.05 level of
significance.
The findings of the study showed mixed results on the effect of adoption of ESOP on
the financial performance of the firms. Some firms revealed positive effect on
performance on adoption of ESOPs while others indicated no effect. The study
recommends that firms should consider adopting ESOPs since it provides an avenue
for employee‟s interest to be aligned with those of the company and therefore is
useful in the effort to attract and retain top talent.
Sponsorhip
University of NairobiPublisher
School of Business, University of Nairobi
Description
Master Thesis