Investigating the impact of ownership dispersion on agency costs and economic performance in UK EOTs

This paper examines the impact of Employee Ownership Trust (EOT) transitions on firm performance, financial structure, and agency costs in UK private companies. Since the 2014 legislation supporting EOTs, their adoption has grown rapidly, yet empirical evidence on their effects remains scarce. Using a panel dataset of 294 firms (2,793 firm-year observations) transitioning to EOT ownership between 2010 and 2024, fixed-effects regressions are employed to assess changes in profitability, liquidity, leverage, and operational efficiency. Results show no significant short-term improvement in profitability, but evidence of improved operational efficiency and reduced agency costs, particularly in employee-intensive firms. EOT transitions are associated with lower liquidity and higher leverage, reflecting transaction financing. Analysis by employee quartiles reveals heterogeneity, firms with higher employee concentration exhibit stronger sales efficiency gains and reduced operating expenses, though EBITDA efficiency declines modestly. These findings highlight the role of ownership intensity and employee engagement in realizing the potential of EOTs.