Working Paper: NBER ID: w24058
Authors: Paige Ouimet; Geoffrey Tate
Abstract: We use unique data on employee decisions in the employee stock purchase plans (ESPPs) of U.S. public firms to measure the influence of networks on investment decisions. Comparing only employees within a firm during the same election window and controlling for a metro area fixed effect, we find that the local choices of coworkers to participate in the firm’s ESPP exert a significant influence on employees’ own decisions to participate. Local coworkers’ trading patterns also disseminate to colleagues through the network. In the cross-section, we find that some employees (men, younger workers) are particularly susceptible to peer influence. Generally, we find that more similar employees exert greater influence on each other’s decisions and, particularly, that high (low) information employees are most affected by other high (low) information employees. However, we also find that the presence of high information employees magnifies the effects of peer networks. We trace a value-increasing investment choice through employee networks. Thus, our analysis suggests the potential of networks and targeted investor education to improve financial decision-making.
Keywords: peer effects; investment decisions; employee stock purchase plans
JEL Codes: D14; G02; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local participation in ESPPs (J54) | individual likelihood to participate (R20) |
| average number of days until local coworkers sell (C41) | average number of days until employee sells shares (C41) |
| peer influence (C92) | susceptibility to peer influence among younger employees and men (C92) |
| high information employees (D83) | amplification of peer network effects (D85) |