Company stock in defined contribution plans and stock market returns

Purpose: We examine whether employee ownership in DC plans are explained by either shared capitalism or managerial entrenchment motives. Design/methodology/approach: calculate the average monthly risk-adjusted return (alpha) of each portfolio sorting firms into six groups based on percentage employer stock market value equity. Findings: find that zero-investment strategy buying a without and selling with largest earns 1.32% alpha per month. Further, we provide evidence portfolios higher experience greater distress risk. Research limitations/implications: These findings suggest capital significantly overvalues plans, supporting Originality/value: To extent there has been no research to time series relation between returns, this study’s novelty is it could explain mixed results presented previous literature.