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
Date Written: March 14, 2014
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: Suggested Citation