Psychological Ownership and Financial Firm Performance: The Interplay of Employee Stock Ownership and Participative Leadership

Based on a survey among 295 of the top 500 Danish companies, we develop and test an integrated model of the simultaneous effects of employee stock ownership (ESO) and a participative leadership style (PLS) on the creation of psychological ownership (PO) and link this to financial firm performance. While the effect of PO on employee behaviour and attitudes is widely recognised, our study finds a significant positive effect on financial performance, emphasising the importance and relevance of enhancing PO. Our results also show that while PLS supporting employee involvement and empowerment as well as incentives in the form of formal ownership (i.e. ESO) individually supports the creation of PO, combining the two may lead to a crowding-out effect. This suggests that the combination of different human resource management (HRM) practices might impede rather than enhance performance, highlighting the need for more research into the combined effects of bundles of HRM practices.