What We Find
Higher stock purchases through ESPPs forecast positive abnormal stock returns
Information is not efficiently incorporated into prices, 6-9% abnormal returns per year
Stronger predictability than with insider trades
ESPP purchases predict future corporate events
Break in a series of consecutive earnings increases, earnings restatements, being the target of an acquisition
Implications
Hidden compensation, Own stock puzzle, Disclosure Policy, Market Efficiency
Low participation rates
A well-paid employee forfeits up to $8,000 per year