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

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  • Ilona Babenko
  • Rik Sen

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 constrained, 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.

Suggested Citation

  • Ilona Babenko & Rik Sen, 2014. "Money Left on the Table: An Analysis of Participation in Employee Stock Purchase Plans," The Review of Financial Studies, Society for Financial Studies, vol. 27(12), pages 3658-3698.
    • Handle: RePEc:oup:rfinst:v:27:y:2014:i:12:p:3658-3698.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhu050
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    Citations

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    Cited by:

    1. Nicolas Aubert & Niaz Kammoun & Yacine Bekrar, 2018. "Financial decisions of the financially literate," Finance, Presses universitaires de Grenoble, vol. 39(2), pages 43-91.
    2. Da Ke, 2021. "Who Wears the Pants? Gender Identity Norms and Intrahousehold Financial Decision‐Making," Journal of Finance, American Finance Association, vol. 76(3), pages 1389-1425, June.
    3. Qin Li & Ben Lourie & Alexander Nekrasov & Terry Shevlin, 2022. "Employee Turnover and Firm Performance: Large-Sample Archival Evidence," Management Science, INFORMS, vol. 68(8), pages 5667-5683, August.
    4. Kruse, Douglas L. & Blasi, Joseph & Weltmann, Dan & Kang, Saehee & Kim, Jung Ook & Castellano, William, 2019. "Do Employee Share Owners Face Too Much Financial Risk?," IZA Discussion Papers 12303, Institute of Labor Economics (IZA).
    5. Ithai Stern & Xin Deng & Guoli Chen & Huasheng Gao, 2021. "The “butterfly effect” in strategic human capital: Mitigating the endogeneity concern about the relationship between turnover and performance," Strategic Management Journal, Wiley Blackwell, vol. 42(13), pages 2493-2510, December.
    6. 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).
    7. Hennig, Jan C. & Ahrens, Carolin & Oehmichen, Jana & Wolff, Michael, 2023. "Employee stock ownership and firm exit decisions: A cross-country analysis of rank-and-file employees," Accounting, Organizations and Society, Elsevier, vol. 104(C).
    8. David Tsui & Marshall Vance, 2023. "Sorting Effects of Broad-Based Equity Compensation," Management Science, INFORMS, vol. 69(7), pages 4240-4258, July.
    9. Ilona Babenko & Rik Sen, 2016. "Do Nonexecutive Employees Have Valuable Information? Evidence from Employee Stock Purchase Plans," Management Science, INFORMS, vol. 62(7), pages 1878-1898, July.
    10. Guoli Chen & Philipp Meyer‐Doyle & Wei Shi, 2021. "Hedge fund investor activism and human capital loss," Strategic Management Journal, Wiley Blackwell, vol. 42(12), pages 2328-2354, December.
    11. Hennig, Jan Christoph & Hullmann, Rieke & Rau, Holger A. & Wolff, Michael, 2021. "The hidden cost of profit sharing on participation in employee stock purchase plans," University of Göttingen Working Papers in Economics 414, University of Goettingen, Department of Economics.
    12. Paige Ouimet & Geoffrey Tate, 2017. "Learning from Coworkers: Peer Effects on Individual Investment Decisions," NBER Working Papers 24058, National Bureau of Economic Research, Inc.
    13. Huang, Chia-Wei & Lin, Chih-Yen & Lin, Wen-Chun & Tsai, Yun-Ching, 2022. "Corruption transfer and acquisition performance," Journal of Banking & Finance, Elsevier, vol. 135(C).
    14. Ahrens, Carolin & Oehmichen, Jana & Wolff, Michael, 2018. "Expatriates as influencers in global work arrangements: Their impact on foreign-subsidiary employees’ ESOP participation," Journal of World Business, Elsevier, vol. 53(4), pages 452-462.
    15. Phua, Kenny & Tham, T. Mandy & Wei, Chishen, 2018. "Are overconfident CEOs better leaders? Evidence from stakeholder commitments," Journal of Financial Economics, Elsevier, vol. 127(3), pages 519-545.

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