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Why walk away from an easy gain in wealth? Evidence from a UK stock option plan

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  • Pendleton, Andrew
  • Robinson, Andrew

Abstract

The paper examines the extent and potential reasons for non-exercise of ‘in the money’ stock options, drawing on employee-level data from the UK Save-As-You-Earn stock option plan. 14 per cent of participants choose not to exercise, and failure to exercise in these circumstances can be costly in terms of foregone increases in wealth. Lesser experience of the option plan, perceived lack of financial knowledge, and greater reliance on friends for advice is associated with failure to exercise. These findings offer challenges to the use of sophisticated reward and benefit schemes by companies when potential participants lack financial capabilities, and add to the literature by showing that financial literacy can remain problematic even when employees have surmounted initial obstacles to joining plans.

Suggested Citation

  • Pendleton, Andrew & Robinson, Andrew, 2021. "Why walk away from an easy gain in wealth? Evidence from a UK stock option plan," Journal of Behavioral and Experimental Finance, Elsevier, vol. 31(C).
    • Handle: RePEc:eee:beexfi:v:31:y:2021:i:c:s2214635021000836
    DOI: 10.1016/j.jbef.2021.100539
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    References listed on IDEAS

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    More about this item

    Keywords

    Stock options; Financial participation; Financial literacy; Savings;
    All these keywords.

    JEL classification:

    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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