Inside the Firm: How Employee Knowledge and Ownership Shape Corporate Decisions

Abstract

A large share of a firm’s day to day operations is carried out by rank and fileemployees, yet little is known about how their information and incentives shape important corporate outcomes. In the first chapter, I assemble a new dataset on Employee Stock Purchase Plan activity for a set of public firms and ask whether non executives provide useful signals in mergers and acquisitions. I find that acquirer abnormal returns and combined acquirer target synergies at announcement both increase with the target firm’s non executive ESPP purchase ratio, suggesting that employee trading behavior contains information about the quality of the deal. The second chapter examines whether employee ownership helps protect firms from data breaches. Employees can observe and monitor one another in ways managers cannot, and ownership strengthens this incentive. Using the share of active ESOP participants as a measure of monitoring strength, I find that firms with higher active ratios are less likely to experience data breaches, although this effect weakens in larger firms. I also show that firms increase their active ratio by about three percent after their first breach, and by six to ten percent following breaches with impacts at least as large as the twenty fifth percentile in their industry. Overall, the findings highlight the role of non executive employees in shaping acquisition outcomes and helping firms manage operational risks.