The Law and Economics of Company Stock in 401(k) Plans
AbstractSome 11 million participants in 401(k) plans invest more than 20 percent of their retirement savings in their employer's stock. Yet investing in the stock of one's employer is risky: single securities are riskier than diversified portfolios, and an employee's human capital typically is positively correlated with the company's performance. In the worst-case scenario, workers can lose their jobs and much of their retirement wealth simultaneously. For workers who expect to work for a company for many years, a dollar of company stock can be valued at less than 50 cents after accounting for risk. However, employees still invest voluntarily in their employer's stock, and many employers insist on making matching contributions in stock. We provide evidence that employees underestimate the risk of owning company stock, while employers overestimate the benefits associated with employee stock ownership. We then analyze the likely effects of current and proposed regulations in this context.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoArticle provided by University of Chicago Press in its journal Journal of Law and Economics.
Volume (Year): 50 (2007)
Issue (Month): 1 (February)
Contact details of provider:
Web page: http://www.journals.uchicago.edu/JLE/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Djaoudath Alidou, 2011. "Les augmentations de capital réservées aux salariés en France - Employee Equity Issue:Evidence from France," Working Papers FARGO 1110603, Université de Bourgogne - Crego EA 7317/Fargo (Research center in Finance,organizational ARchitecture and GOvernance).
- Thomas Rapp & Nicolas Aubert, 2011. "Bank Employee Incentives and Stock Purchase Plans Participation," Journal of Financial Services Research, Springer, vol. 40(3), pages 185-203, December.
- James Choi & David Laibson & Brigitte Madrian, 2008. "The Flypaper Effect in Individual Investor Asset Allocation," Yale School of Management Working Papers amz2560, Yale School of Management.
- Schnellenbach, Jan, 2012. "Nudges and norms: On the political economy of soft paternalism," European Journal of Political Economy, Elsevier, vol. 28(2), pages 266-277.
- James J. Choi & David Laibson & Brigitte C. Madrian, 2007.
"Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect,"
NBER Working Papers
13656, National Bureau of Economic Research, Inc.
- James J. Choi & David Laibson & Brigitte C. Madrian, 2009. "Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect," American Economic Review, American Economic Association, vol. 99(5), pages 2085-95, December.
- Laibson, David I. & Madrian, Brigitte & Choi, James J., 2009. "Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect," Scholarly Articles 4686774, Harvard University Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division).
If references are entirely missing, you can add them using this form.