“Do Non-Executive Employees Have Information? Evidence from Employee Stock Purchase Plans ” by Rik Sen
The Hong Kong University of Science and Technology
Using a novel data set on employee stock purchase plans (ESPP), we document that firms in the top quartile of aggregate ESPP purchases outperform those in the bottom quartile by 7% in the next year. Our results suggest that the return predictability is driven by information of lower level employees and not by information of top management or greater employee motivation. Higher ESPP purchases predict a lower likelihood of an earnings restatement, a lower likelihood of an earnings break, and a higher likelihood of the firm becoming a takeover target. Our findings have implications for the own company tock puzzle and the cost of stock-based compensation to shareholders.