Firms initiating broad‐based employee share ownership plans often claim employee stock ownership plans (ESOPs) increase productivity by improving employee incentives. Do they? Small ESOPs comprising less than 5% of shares, granted by firms with moderate employee size, increase the economic pie, benefiting both employees and shareholders. The effects are weaker when there are too many employees to mitigate free‐riding. Although some large ESOPs increase productivity and employee compensation, the average impacts are small because they are often implemented for nonincentive purposes such as conserving cash by substituting wages with employee shares or forming a worker‐management alliance to thwart takeover bids.

We find weak governance is a primary reason investors react negatively to the announcement of seasoned equity offerings (SEOs). Using a difference-in-differences approach, we find investors worry about nonproductive use of SEO proceeds when external pressure for good governance lifts due to an external shock. Investors react negatively only when treated firms raise funds to increase capital investments. Market reaction is more negative when issuers have prior records of value-reducing acquisitions and weaker managerial wealth sensitivity to shareholder value. The magnitudes of these governance effects are surprisingly large, explaining most of the previously documented negative market reactions to primary SEOs.