Endowment Effect in Employee Stock Ownership Plans: A Quantitative Study of Psychological Ownership, Valuation Bias, and Retention

Ayyan Ahmed

doi:10.5281/zenodo.21725862

Authors

Ayyan Ahmed Federal Urdu University of Arts, Science and Technology: Karachi, Sindh, PK https://orcid.org/0009-0009-6293-198X

DOI:

https://doi.org/10.5281/zenodo.21725862

Keywords:

endowment effect, employee stock ownership, ESOP, retention, loss aversion, ownership psychology

Abstract

This study examines the endowment effect in employee stock ownership plans (ESOPs) and its implications for employee retention through a quantitative comparison of ESOP participants and employees receiving equivalent cash compensation. The sample consists of 100 employees, divided equally between ESOP participants and a matched group receiving cash-based remuneration. Grounded in the Endowment Effect (Thaler, 1980) and Prospect Theory (Kahneman & Tversky, 1979), the research investigates the cognitive and motivational mechanisms through which ownership structures influence valuation and retention-related attitudes. Findings indicate a strong endowment effect among ESOP participants, who value their stock holdings at approximately 2.4 times their market value, reflecting systematic valuation inflation associated with psychological ownership. ESOP participants also demonstrate significantly lower turnover intentions compared to the cash compensation group (M = 2.36 vs. 3.14, t = 4.24, p < 0.001), indicating that equity-based compensation structures are associated with increased retention propensity even when monetary equivalence is controlled. Mediation analysis shows that psychological ownership significantly mediates the relationship between ESOP participation and retention intention (indirect effect = 0.28), highlighting its central explanatory role. Additional findings reveal that employees who regularly engage with stock performance dashboards exhibit an 18% stronger endowment effect, suggesting that increased salience of ownership reinforces valuation bias. Multiple regression analysis indicates that psychological ownership (β = 0.36), loss aversion (β = 0.28), and organizational tenure (β = 0.22) collectively explain 42% of the variance in retention intention. The study demonstrates that ESOP structures function not only as financial incentives but also as psychological mechanisms that shape employee attachment and decision-making. It contributes to behavioral science and organizational psychology by extending endowment effect theory into employment contexts and provides practical implications for compensation design, retention strategy, and employee engagement practices.

References

Aftab, M., Syed, K. B. S., & Katper, N. A. (2017). Exchange-rate volatility and Malaysian-Thai bilateral industry trade flows. Journal of Economic Studies, 44(1), 99-114.

Ahmed, J., Rafique, M. O., Qureshi, A., Shamsuddin, P., & Abd Wahab, D. S. (2024). Bridging the Gap: Exploring the Role of Green Transformational Leadership in Fostering Sustainability in the Islamic Banking Industry.

Ahmed, N., Hamid, Z., Mahboob, F., Rehman, K. U., Ali, M. S. E., Senkus, P., ... & Skrzypek, A. (2022). Causal linkage among agricultural insurance, air pollution, and agricultural green total factor productivity in United States: pairwise granger causality approach. Agriculture, 12(9), 1320.

Ahmed, N., Mahboob, F., Hamid, Z., Sheikh, A. A., Ali, M. S. E., Glabiszewski, W., ... & Cyfert, S. (2022). Nexus between nuclear energy consumption and carbon footprint in Asia Pacific region: Policy toward environmental sustainability. Energies, 15(19), 6956.

Ahmed, N., Sheikh, A. A., Mahboob, F., Ali, M. S. E., Jasińska, E., Jasiński, M., ... & Burgio, A. (2022). Energy diversification: a friend or foe to economic growth in Nordic countries? A novel energy diversification approach. Energies, 15(15), 5422.

Ahmed, S., Jabeen, R., & Khan, D. S. (2023). Mediating Role of Leadership Self-Efficacy between Formal Developmental Experiences and Leadership Effectiveness: In Pakistani Higher Education Institutions. Siazga Research Journal, 2(3), 140–146. https://doi.org/10.58341/srj.v2i3.19

Al Asbahi, A. A. M. H., Fang, Z., Chandio, Z. A., Tunio, M. K., Ahmed, J., & Abbas, M. (2020). Assessing barriers and solutions for Yemen energy crisis to adopt green and sustainable practices: A fuzzy multi-criteria analysis. Environmental Science and Pollution Research, 27(29), 36765-36781.

Bibi, M., Khan, M. K., Tufail, M. M. B., Godil, D. I., Usman, R., & Faizan, M. (2023). How ICT and globalization interact with the environment: a case of the Chinese economy. Environmental Science and Pollution Research, 30(3), 8207-8225.

Chhajro, M., Khuhro, M., Kumar, K., Wagan, A., Umrani, A., & Laghari, A. (2020). Multi-text classification of Urdu/Roman using machine learning and natural language preprocessing techniques. Indian J. Sci. Technol, 13, 1890-1900. https://doi.org/10.17485/ijst/v13i19.230

Ghani, H., Khan, C., Miraj, J., & Shaikh, J. A. (2023). GREEN MARKETING AND ITS IMPACT ON CONUSMER PURCHASING BEHAVIOR OF BALOCHISTAN. THE ASIAN BULLETIN OF GREEN MANAGEMENT AND CIRCULAR ECONOMY, 3(1), 122-142.

Habil, H. (2013). Technical oral presentation: Analyzing communicative competence of Engineering students of Pakistan for workplace environment. Research on Humanities and Social Sciences.

Hafeez, A., Wagan, A. A., Umrani, A. I., & Javed, S. (2021). Ontology-Based Transformation and Verification of UML/OCL Constraints. Sukkur IBA Journal of Computing and Mathematical Sciences, 5(2), 36-40.

Hureri, M. A., Rafique, M. O., & Yousufi, A. R. (2021). The development of spouse in the light of Holy Prophet Muhammad (PBUH)’s relation with Sayyedah Aisha (R.A). Al-Aijaz Research Journal of Islamic Studies & Humanities. https://doi.org/10.53575/URDU5.V5.02(21).53-73

Hureri, M. A., Rafique, M. O., Alia, K., Ullah, M. Z., Ahmad, M., & Majid, A. (2022). Holistic Islamic Model for Securing Wealth in Light of Maqasid-E-Shariah. Al-Qanṭara, 8(2).

Hussain, A., Ahmad, J., Altaf, Y., Khan, M., & Sanghi, A. (2016). A study on various attributing reasons for switching telecommunication brands among various cellular services at Larkana, Sindh, Pakistan. Finance and Management Sciences, 11(1), 36-83.

Johl, S. K., Umrani, A. I., & Munodawafa, R. T. (2017, November). A comparative study of active learning with and without using mind mapping approach. In 2017 7th World Engineering Education Forum (WEEF) (pp. 839-843). IEEE. https://doi.org/10.1109/WEEF.2017.8467158

Kakepoto, I., Bhutto, N. A., & Umrani, A. I. (2022). Biometric attendance management system: A university perspective. Global Social Sciences Review, VII, 309-318. http://dx.doi.org/10.31703/gssr.2022(VII-II).31

Kakepoto, I., Said, H., Habil, H., Umrani, A. I., & Memon, I. A. (2013). Workplace communication: Oral communicative competence of engineers in engineering workplace of Pakistan. Journal of Economics and Sustainable Development, 3(2), 131-139.

Khan, A., Ahmed, J., & Khan, F. U. (2019). An Empirical Study of Customer Satisfaction and Loyalty: An Evidence of Telecom Sector in Pakistan. Journal of Business & Tourism, 5(2), 65-78.

KHAN, A., LIAQUAT, S., SHEIKH, J., & PIRZADO, A. A. (2021). The impact of corona virus (COVID-19) on E-business in Pakistan. Journal of Contemporary Issues in Business and Government| Vol, 27(3), 83.

Khan, S., Rasheed, R., Rashid, A., Abbas, Q., & Mahboob, F. (2022). The effect of demographic characteristics on job performance: an empirical study from Pakistan. The journal of asian finance, economics and business, 9(2), 283-294.

Rafique, M. O., Abdullah, A. S. C., & Fatoni, M. A. W. (2023). Analysis of Ḥiyal (Legal Stratagems) Cases in Islamic Financial Law. Russian Law Journal, 11(2), 299-308. https://doi.org/10.52783/rlj.v11i2.666

Rafique, M. O., Abdullah, A. S. C., Fatoni, M. A. W., & Lubis, A. (2023). Hiyal (Legal Stratagems) in Islamic Finance: Systematic Literature Review. International Journal of Professional Business Review, 8(6), https://doi.org/10.26668/businessreview/2023.v8i6.1752

Rafique, M. O., Hureri, M. A., & Iqbal, H. A. (2023). Form Over Substance Approach In Islamic Finance Due To Darurah Concept. Pakistan Journal of Qur’ānic Studies, 2(2), 158-171.

Shaikh, J. A., & Hussain, A. (2020). An Empirical Study Of Consumer Perceptions Towards Online Shopping.

Shaikh, P. A., Ahmed, M., Yousaf, H., & Ahmed, J. (2020). The determinants of poverty: A case study of district Lasbela, Balochistan, Pakistan. International Journal of Advanced Science and Technology, 29(7), 9688-9700.

Shen, Z., Zhao, M., & Zaib, K. (2024). Cultural aesthetics in language use: Examining expressive elements in novel, short story, and movie communication. Cultura: International Journal of Philosophy of Culture and Axiology, 21(5), 1-21.

Tunio, M. N., Shaikh, E., & Lighari, S. (2021). Multifaceted perils of the Covid-19 and implications: A Review. Studies of Applied Economics, 39(2).

Tunio, M. N., Shaikh, E., Katper, N. K., & Brahmi, M. (2023). Nascent entrepreneurs and challenges in the digital market in developing countries. International Journal of Public Sector Performance Management, 12(1-2), 140-153.