The Law and Economics of Company Stock in 401(k) Plans
Some 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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
When requesting a correction, please mention this item's handle: RePEc:ucp:jlawec:y:2007:v:50:i:1:p:45-79. See general information about how to correct material in RePEc.
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.