Corporate Pension Policy: An Empirical Investigation

Bodie, Zvi; Light, Jay O.; Mørck, Randall; Taggart, Robert A.

doi:10.2469/faj.v41.n5.10

Cited by 94 publications

(52 citation statements)

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“…However, several of the relationships predicted by these theories have been examined in a different context. Friedman (1983) and Bodie et al (1987) test relationship H1 for the funding ratio of US pension plans, with opposite conclusions (see Section 1). Cocco and Volpin (2007) test H1-H3 for UK firms and find that firm profitability and leverage correlate positively and negatively with sponsor contributions, respectively.…”

Section: Hypothesesmentioning

confidence: 98%

“…For example, Friedman (1983), using a broad sample of US firms for 1977, documents that the level of pension funding is negatively related to sponsor profitability, whereas Bodie et al (1987), using data on around 500 US firms for 1980, find that the level of pension funding is positively related to companies' long-run profitability. With respect to pension asset allocation, Bodie et al (1987) report that pension assets of more risky firms are more heavily invested in equity, while Friedman (1983) finds the opposite. Petersen (1996), using US data for [1988][1989][1990], concludes that defined benefit pension funds invest more in safe assets if the sponsoring firms are less profitable and more in risky assets if the firms have high earnings.…”

Section: Introductionmentioning

confidence: 99%

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Pension fund finance and sponsoring companies

Davis

Haan

2012

Journal of Pension Economics and Finance

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We present empirical evidence on the funding and portfolio allocation of around 200 Dutch corporate pension funds over the period 1996-2005, with a special focus on the influence of the sponsoring firm. We find that unprofitable and small firms contribute less to their pension funds than profitable and large firms, consistent with theories of capital market imperfections. Sponsor contributions are found to be positively correlated with leverage, suggesting that tax effects play a role. Defined benefit funds invest relatively more in equity and less in bonds than their defined contribution counterparts, which is in accordance with the risk shifting theory.JEL CODES : G23, G32

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Section: Hypothesesmentioning

confidence: 98%

Section: Introductionmentioning

confidence: 99%

Pension fund finance and sponsoring companies

Davis

Haan

2012

Journal of Pension Economics and Finance

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“…In fact, firms can maintain some financial slack in the form of pension assets, in addition to liquid assets and unused debt capacity (Bartram, 2015;Ballester, Fried and Livnat, 2002;Bodie, Light, Mørck and Taggart, 1985;Friedman, 1983). The latter may be more readily accessible, while the former has tax advantages.…”

Section: Plan Contributions and Funding Levelsmentioning

confidence: 99%

“…2 Moreover, it adds in important ways to the limited existing evidence regarding the relation of funding levels and investment risk with plan sponsor characteristics. In particular, Rauh (2009), Bodie, Light, Mørck and Taggart (1985), and Friedman (1983) study the asset allocation of pension plans and provide mixed conclusions whether firms use their defined-benefit pension funds for risk management or risk shifting. Rauh (2009) notes that a large fraction of the variation in pension fund asset allocation at the firm level remains unexplained and suggests that future studies seek to identify additional factors that affect variations in pension fund investment strategies.…”

Section: Introductionmentioning

confidence: 99%

In good times and in bad: Defined-benefit pensions and corporate financial policy

Bartram

2018

Journal of Corporate Finance

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U.S. sponsors of defined-benefit pension plans integrate their pension plans into their overall financial management. Plan contributions are smaller and funding levels lower for plan sponsors that have less cash, are less profitable and are financially distressed. Moreover, plan sponsors make more aggressive pension plan assumptions if they have lower cash holdings and profit margins. While there is no evidence that plan sponsors generally take more risk with their pension plan assets if they have high business or financial risk, there is some evidence of risk shifting during major economic downturns such as the global financial crisis. As a result, funding rules, pension plan assumptions and investment policies are areas to consider for pension policy to protect plan beneficiaries. Keywords In Good Times and in Bad:Defined-Benefit Pensions and Corporate Financial Policy Abstract U.S. sponsors of defined-benefit pension plans integrate their pension plans into their overall financial management. Plan contributions are smaller and funding levels lower for plan sponsors that have less cash, are less profitable and are financially distressed. Moreover, plan sponsors make more aggressive pension plan assumptions if they have lower cash holdings and profit margins. While there is no evidence that plan sponsors generally take more risk with their pension plan assets if they have high business or financial risk, there is some evidence of risk shifting during major economic downturns such as the global financial crisis. As a result, funding rules, pension plan assumptions and investment policies are areas to consider for pension policy to protect plan beneficiaries.

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“…Al. (1985) and Bodie (1985) are among the studies which show that the market does take into account the value of unfunded pension liabilities whereas Carroll-Niehaus (1998) show that pension liabilities affect corporate debt ratings. And, Mittelstaedt and Warshawsky (1993) show that retiree health liabilities of companies affect stock prices.…”

Section: Introductionmentioning

confidence: 99%

Severance Pay and Corporate Finance: Empirical Evidence from a Panel of Austrian and Italian Firms

Cardinale¹,

Orszag²

2005

Empirica

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit company supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion.Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. This paper examines the empirical link between severance pay and corporate finance. Severance pay is an economic debt of the employer and hence should be taken into account by the market in its assessments of risk. Using a hand collected dataset of accounting data from Italy and Austria we find there is only a limited relationship between severance pay and market risk indicators. This suggests that arguments that severance pay systems destroy corporate value may need to be reassessed.JEL Classification: J65, J32, G39

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Corporate Pension Policy: An Empirical Investigation

Cited by 94 publications

References 0 publications

Pension fund finance and sponsoring companies

Pension fund finance and sponsoring companies

In good times and in bad: Defined-benefit pensions and corporate financial policy

Severance Pay and Corporate Finance: Empirical Evidence from a Panel of Austrian and Italian Firms

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