The Cost of Owning Employer Stocks: Lessons from Taiwan

Posted: 8 Mar 2010

See all articles by Yi-Tsung Lee

Yi-Tsung Lee

Peking University - Guanghua School of Management

Yu-Jane Liu

National Chengchi University (NCCU) - Department of Finance and Banking

Ning Zhu

China Academy of Financial Research (CAFR); Yale School of Management; University of California, Davis - Graduate School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2007

Abstract

Using data on all employees at listed companies in Taiwan, we find that the bias toward employer stocks is generic to individual investor decision-making, but not limited to retirement plans. 71 percent of sample employees invest in employer stocks and the employer stocks make up on average 47 percent of employee equity portfolios. The under-diversification resulting from the bias toward employer stocks is highly costly. Holding current portfolio risk constant, employees forego 4.89 percent per annum in raw returns by investing in employer stocks, which represents 39.74 percent of their average 1998 salary income. Our findings have important implications for social security reform and retirement account management.

Suggested Citation

Lee, Yi-Tsung and Liu, Yu-Jane and Zhu, Ning, The Cost of Owning Employer Stocks: Lessons from Taiwan (December 1, 2007). Available at SSRN: https://ssrn.com/abstract=1548445

Yi-Tsung Lee

Peking University - Guanghua School of Management ( email )

Office 336, Guanghua Building 2
Beijing, Beijing 100871
China
(86-10) 6275 5742 (Phone)
(86-10) 6275 5742 (Fax)

Yu-Jane Liu

National Chengchi University (NCCU) - Department of Finance and Banking ( email )

64, Chih-nan Rd., Sec. 2, Mucha,
Taipei, 116
Taiwan ROC
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Ning Zhu (Contact Author)

China Academy of Financial Research (CAFR)

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China

Yale School of Management ( email )

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HOME PAGE: http://pantheon.yale.edu/~nz26/

University of California, Davis - Graduate School of Management ( email )

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530-752-2924 (Fax)

HOME PAGE: http://www.gsm.ucdavis.edu/Faculty/Zhu/

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