The First is Free: Do Employee Stocks Incentivize Stock Market Participation?

19 Pages Posted: 24 Oct 2022

See all articles by Ulf Nielsson

Ulf Nielsson

Copenhagen Business School

Oliver-Alexander Press

Copenhagen Business School

Date Written: October 1, 2022

Abstract

Relatively few people participate in the stock market. We investigate whether getting employee stocks as part of one’s compensation makes people more likely to actively invest in stocks. We find the probability of actively participating in the stock market increases by 15% for those who have been given employee stocks. This lends strong support to cognitive costs in stock market entry. We further find that people predominantly increase direct stock holdings as opposed to indirect holdings via mutual funds. Despite the significant spillover effects from holding employee stocks and an overall larger fraction of individual wealth being invested into stocks, it does not result in well diversified investing.

Keywords: employee stocks, stock market participation, portfolio choice

JEL Classification: D14, G01, G11, G21

Suggested Citation

Nielsson, Ulf and Press, Oliver-Alexander, The First is Free: Do Employee Stocks Incentivize Stock Market Participation? (October 1, 2022). Available at SSRN: https://ssrn.com/abstract=4253772 or http://dx.doi.org/10.2139/ssrn.4253772

Ulf Nielsson

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Oliver-Alexander Press (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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