Investor Behavior and the Purchase of Company Stock in 401(k) Plans - The Importance of Plan Design

Nellie Liang and Scott Weisbenner

No 9131, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using panel data for nearly 1,000 companies during 1991 to 2000, this paper documents that the average share of participant's discretionary 401(k) contributions in company stock was almost 20 percent, and then relates this share to plan design features and firm financial characteristics. We find that the number of investment alternatives offered, n, and whether the company requires some of the match to be in company stock are key factors of the share of total contributions in company stock. We cannot reject the hypothesis that participants invest 1/n of their contributions in company stock. In addition, participants do not offset an employer match in company stock with a smaller share of their own contributions to company stock, contrary to efficient diversification. Workers also appear to view other plan restrictions as providing cues about the desirability of purchasing company stock. Thus, plan design is very important in determining the share of 401(k) assets in company stock.

JEL-codes: G11 J30 (search for similar items in EconPapers)
Date: 2002-08
Note: CF PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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Working Paper: Investor behavior and the purchase of company stock in 401(k) plans - the importance of plan design (2002)
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