Abstract

We use unique data on employee decisions in the employee stock purchase plans (ESPPs) of U.S. public firms to measure the influence of networks on investment decisions. Comparing only employees within a firm during the same election window and controlling for a metro area fixed effect, there is a strong relationship between coworkers participation in ESPPs and other employees’ decisions to also participate. Local coworkers’ trading patterns also disseminate to colleagues through the network. In the cross-section, we find that some employees (men, younger workers) are particularly susceptible to peer influence. Generally, we find that more similar employees exert greater influence on each other’s decisions and, particularly, that high (low) information employees are most affected by other high (low) information employees. However, we also find that the presence of high information employees magnifies the effects of peer networks. We trace a value-increasing investment choice through employee networks. Thus, our analysis suggests the potential of networks and targeted investor education to improve financial decision-making.

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