Understanding Employer's Stock Holdings in the French Company Savings Plans Using the Literature on the American 401(k) plans

The collapse of sadly notorious American corporations whose retirement plans were primarily invested in company stocks has aroused a growing interest in understanding employees‟ investment decisions about company stock. American 401(k) plans and the French Company Savings Plans have in common to give employees the choice to invest among different kinds of funds. Some of them are invested in diversified portfolios whereas others are invested in company stocks. The goal of this paper is to understand why employees are willing to select funds invested in company stocks regardless of the basic recommendations of the portfolio choice theory. To better understand these choices, we should review the American literature, which emphasised their determinants in the context of the 401(k) retirement plans. These researches conclude that employees‟ choices are led by several rational and behavioural determinants: Employers‟ matching contributions in company stocks; an excessive extrapolation of past returns on company stock; employees‟ familiarity with their company or their loyalty to it; decision heuristics leading employees‟ choice among the different funds available. ha ls hs -0 01 88 51 8, v er si on 2 7 Fe b 20 10 Author manuscript, published in "Gestion 2000 6, 6 (2006) 61-77"