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Money Left on the Table: An Analysis of Participation in Employee Stock Purchase Plans

Review of Financial Studies, Vol. 27, pp. 3658-3698, 2014

61 Pages Posted: 23 Oct 2012 Last revised: 23 Apr 2015

Ilona Babenko

Arizona State University

Rik Sen

University of New South Wales (UNSW)

Date Written: March 14, 2014

Abstract

We analyze participation decisions in employee stock purchase plans. These plans allow employees to buy company stock at a discount from the market price and resell it immediately for a sure profit. Although an average employee stands to gain $3,079 annually, only 30% of individuals take advantage of this risk-free opportunity. Participation is more likely among employees who are familiar with stocks, are more educated, are less financially unconstrained, and make fewer errors in valuing financial securities. Our results suggest that compensation plans requiring active decisions by individuals can result in poor financial outcomes for employees of lower socioeconomic status.

Keywords: household investment choices, portfolio choice, equity market participation, behavioral economics

JEL Classification: D12, D14, E21, H3, J33

Suggested Citation

Babenko, Ilona and Sen, Rik, Money Left on the Table: An Analysis of Participation in Employee Stock Purchase Plans (March 14, 2014). Review of Financial Studies, Vol. 27, pp. 3658-3698, 2014. Available at SSRN: https://ssrn.com/abstract=2166012 or http://dx.doi.org/10.2139/ssrn.2166012

Ilona Babenko (Contact Author)

Arizona State University ( email )

Department of Finance
W.P. Carey School of Business
Tempe, AZ 85287
United States

Rik Sen

University of New South Wales (UNSW) ( email )

Sydney, NSW 2052
Australia

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