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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

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More from the Author
  • Reclaiming the Land of Purple: Purpl’s Mission to Unlock Finance in Lebanon By: Lauren Cohen and Grace Headinger
  • In Data We Trust: Be Mobile Africa and Furthering Financial Inclusion Across the African Continent By: Lauren Cohen, Grace Headinger and Pierre Marchesseault
  • Toraya By: Lauren Cohen and Akiko Kanno
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