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  • March 2009
  • Article
  • Review of Financial Studies

Loyalty-Based Portfolio Choice

By: Lauren Cohen
  • Format:Print
  • | Pages:33
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Abstract

I evaluate the effect of loyalty on individuals' portfolio choice using a unique dataset of retirement contributions. I exploit the statutory difference that in 401(k) plans stand alone employees can invest directly in their division, while conglomerate employees must invest in the entire firm, including all unrelated divisions. Consistent with loyalty, employees of stand alone firms invest 10 percentage points (75%) more in company stock than conglomerate employees. Support is also found using variation in loyalty between different groups of employees, both across and within firms. The cost to employees of loyalty is large, and can amount to nearly a 20 percent loss in retirement income.

Keywords

Investment; Retirement; Decisions; Employees; Performance Evaluation; Business Conglomerates; Compensation and Benefits

Citation

Cohen, Lauren. "Loyalty-Based Portfolio Choice." Review of Financial Studies 22, no. 3 (March 2009): 1213–1245.
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About The Author

Lauren H. Cohen

Finance
→More Publications

More from the Author

    • 2023
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    Too Many Managers: The Strategic Use of Titles to Avoid Overtime Payments

    By: Lauren Cohen, Umit Gurun and N. Bugra Ozel
    • 2022
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    Hidden Alpha

    By: Lauren Cohen, Manuel Amman, Alexander Cochardt and Stephan Heller
    • October 2022 (Revised January 2023)
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    Century Bank: Closing Time?

    By: Lauren Cohen, Grace Headinger and Bill Kwon
More from the Author
  • Too Many Managers: The Strategic Use of Titles to Avoid Overtime Payments By: Lauren Cohen, Umit Gurun and N. Bugra Ozel
  • Hidden Alpha By: Lauren Cohen, Manuel Amman, Alexander Cochardt and Stephan Heller
  • Century Bank: Closing Time? By: Lauren Cohen, Grace Headinger and Bill Kwon
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