Lack of diversification among employee stock owners: An empirical evaluation of behavioral explanations

The article considers the reasons for employees holding large proportions of their financial savings and investments in company stock, drawing on explanations proposed in the behavioral finance literature. Utilizing data from a survey of employees participating in the United Kingdom Save as You Earn stock options and savings scheme, it is found that substantial proportions of stock owners hold sizeable concentrations of employer stock. Several explanations for this risky behavior are tested, with familiarity, reciprocity, and inertia found to be associated with portfolio concentration. Organizational commitment and “naïve extrapolation” from recent stock prices are not. The implications for theory and practice are considered.