Fareeha Waseem, Syeda Fizza Abbas, and Anum Farooq of Kinnaird College for Women’s Department of Accounting & Finance draw attention to the complex relationship between Employee Stock Ownership (ESO) and a company’s cost of capital. Their research delves further on the role of ESO in resolving agency conflicts inside companies and the resultant influence on capital costs.
The study uses panel data regression to evaluate 11 years of data (2012-2022) from companies listed on the KSE 100. The concept is based on the notion that ESO lowers a company’s cost of capital by cutting both equity and debt costs.
The findings show that ESO has a significant impact on a variety of components, including the company’s cost of debt, equity cost, and overall capital cost. The observed negative association implies that as Employee Stock Ownership increases, so does the company’s cost of debt, equity, and capital.
This study adds significantly to the body of knowledge about ESO, particularly in the context of Pakistan. It offers light on the relationship between ESO and agency expenses, demonstrating how it reduces costs while benefiting both the company and shareholders. The report suggests that organizations implement ESO strategies as a strategic move, stressing capital cost reduction and effective principal-agent conflict prevention. While the focus is on the KSE 100, potential differences between sectors and the addition of stock prices as dependent variables are issues for further research.
Article reviewed by:
- Muhammad Shahryar Jourra, Lecturer of business and economics, University of Education, Lahore
- Qamar Abbas, Lecturer of business and economics, University of Education, Lahore
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