Workshop Series: Rik Sen
Using a novel data set on employee stock purchase plans (ESPPs), we examine whether lower-level employees have information about future firm performance. We find that high ESPP purchases are associated with a lower likelihood of future adverse events (earnings re-statements and earnings breaks), and a higher likelihood of favorable events (the firm becoming a takeover target). Further, firms in the top quartile of aggregate ESPP purchases outperform those in the bottom quartile by 6 to 9% in the year after purchase. The return predictability is unlikely to be driven by trading of top management or greater employee motivation. Our results have implications for firms using employees as a source of capital, role of employees in internal governance, and market efficiency.
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Dr. Rik Sen works in the area of Corporate Finance with a focus on Corporate Governance and Insider Trading. He received a PhD in Finance from New York University's Stern School of Business in 2009. He is an Assistant Professor of Finance at HKUST Business School in the Finance department since July 2009.