The Cost of Owning Employer Stocks: Lessons from Taiwan

44 Pages Posted: 15 Mar 2006

See all articles by Ning Zhu

Ning Zhu

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

Yi-Tsung Lee

Peking University - Guanghua School of Management

Yu-Jane Liu

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

Multiple version iconThere are 2 versions of this paper

Date Written: March 2006

Abstract

Using data on all employees at listed companies in Taiwan, where pension plans were rare, we find that bias toward employer stocks is generic to individual investor decisionmaking, 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.

Keywords: Employer stock, retirement, pension reform, investor behavior

JEL Classification: G12, G23, J26

Suggested Citation

Zhu, Ning and Lee, Yi-Tsung and Liu, Yu-Jane, The Cost of Owning Employer Stocks: Lessons from Taiwan (March 2006). Available at SSRN: https://ssrn.com/abstract=890836 or http://dx.doi.org/10.2139/ssrn.890836

Ning Zhu (Contact Author)

China Academy of Financial Research (CAFR)

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Yale School of Management ( email )

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

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

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
(882)-2-2939-3091 ext. 81123 (Phone)

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