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

Andrew Pendleton and Andrew Robinson

Journal of Behavioral and Experimental Finance, 2021, vol. 31, issue C

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.

Keywords: Stock options; Financial participation; Financial literacy; Savings (search for similar items in EconPapers)
JEL-codes: G40 G51 G53 J32 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:31:y:2021:i:c:s2214635021000836

DOI: 10.1016/j.jbef.2021.100539

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