Exploring the impact of employee stock ownership on earnings informativeness in the Korean Market

Abstract

This study examines the relationship between Employee Stock Ownership (ESO) and earnings informativeness, measured by the Future Earnings Response Coefficient (FERC). Test results show that ESO helps mitigate information asymmetry by promoting income smoothing, thereby enhancing the reflection of future earnings in stock prices. The effect is particularly pronounced in firms with lower analyst coverage or concentrated ownership, which are common features in the Korean market. These findings suggest that Employee Stock Ownership Plan (ESOP) can serve as an internal governance mechanism to improve transparency and align managerial incentives with long-term firm value. From a policy perspective, encouraging ESO may support governance reforms by strengthening minority shareholder protection and improving market efficiency.