Does freezing a defined benefit pension plan affect firm risk?

Choy, Helen; Lin, James Juichia; Officer, Micah S.

doi:10.1016/j.jacceco.2013.11.004

Cited by 73 publications

(53 citation statements)

References 26 publications

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“…Choy, Lin, and Officer [] argue that when a firm declares a hard freeze on its defined benefit pension plans, it stops future accrual of retirement benefits for its managers. An immediate implication is that the percentage of inside debt relative to other compensation components declines over time for firms with pension freezes.…”

Section: Sample Selection and Empirical Resultsmentioning

confidence: 99%

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CEO Inside Debt Incentives and Corporate Tax Sheltering

Chi

Huang

Sánchez

2017

J of Accounting Research

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This paper examines the relation between CEO inside debt holdings (pension benefits and deferred compensation) and corporate tax sheltering. Because inside debt holdings are generally unsecured and unfunded liabilities of the firm, CEOs are exposed to risk similar to that faced by outside creditors. As such, theory (Jensen and Meckling [1976]) suggests that inside debt holdings negatively impact CEO risk-appetite. To the extent that corporate tax shelters are likely to result in high cash flow volatility in the future, we expect that inside debt holdings will curb CEOs from engaging in tax shelter transactions. Consistent with the prediction, we document a negative association between CEO inside debt holdings and tax sheltering. Additional analyses suggest that the effect of inside debt on tax sheltering is more (less) pronounced in the presence of high default risk and liquidity threats (cash-out options in pension packages). Overall, our results highlight the importance of investigating the implication of CEO debt-like compensation for corporate tax policies.

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Section: Sample Selection and Empirical Resultsmentioning

confidence: 99%

“…Following recent research examining the implications of pension plan freezes (Choy, Lin, and Officer []), we obtain data as to whether the firm freezes its pension plan from Form 5500. Form 5500 is available at the U.S. Department of Labor (Employee Benefits Security Administration Agency) Web site (http://www.dol.gov/ebsa/foia/foia-5500.html).…”

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confidence: 99%

CEO Inside Debt Incentives and Corporate Tax Sheltering

Chi

Huang

Sánchez

2017

J of Accounting Research

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“…This is because the management power of private companies mainly stems from the prestige power formed by private entrepreneurs in the process of starting and expanding the company, as well as the ownership power from shareholders as the concurrent executives. If private companies are managed by professional managers, then management power is often bestowed or authorised by the organisation , Choy et al, 2014, Caggese, 2012.…”

Section: Management Power and Risk-takingmentioning

confidence: 99%

“…First, previous studies explain that the shareholding structure affects companies' risk-taking behaviour (Boubakri, Cosset, & Saffar, 2013;Li & Yu, 2012). Second, empirical studies on management incentives clarify how to enhance management's willingness to take risks (Choy, Lin, & Officer, 2014;Kempf, Ruenzi, & Thiele, 2009;Li & Zhang, 2014;Liu, Xiao xi, Weng, & Wang, 2016). Third, managers are the direct decision-makers regarding corporate investments, and their personal characteristics significantly affect corporate risk-taking (Cheng, Hsu, & Kung, 2015;Faccio, Marchica, & Mura, 2011).…”

Section: Introductionmentioning

confidence: 99%

Political association, managerial power heterogeneity, and corporate risk-taking in China

Chai

Mirza

2019

Economic Research-Ekonomska Istraživanja

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This article investigates the impact of political association and managerial power heterogeneity on corporate risk-taking using data of listed companies in China from 2006 to 2015. Politically associated companies demonstrate higher corporate risk-taking, and the impact of managerial power thereon depends on the source thereof. Structurally speaking, board of directors' supervision, and shareholders' supervision power are positively associated with corporate risk-taking, but ownership, expert, and prestige power are negatively associated. Political association weakens the influence of structural and prestige power on corporate risk-taking and strengthens the impact of ownership and expert power thereon. The article adds to the literature on political association, managerial power, and corporate risk-taking. ARTICLE HISTORY

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“…<Insert Figure 1 about here> 4 Prior literature identifies several determinants of corporate risk-taking. These include corporate governance (John et al 2008), creditor rights (Acharya, Amihud, and Litov 2011), inside debt (Choy, Lin, and Officer 2014), managerial incentives (May 1995;Rajgopal and Shevlin 2002), shareholder diversification (Faccio, Marchica, and Mura 2011), and regulatory acts (Bargeron, Lehn, and Zutter 2010). We focus on the effect of taxes on corporate risk-taking but control for these findings in our regression model.…”

Section: Theoretical Modelmentioning

confidence: 99%

Do Country Risk Factors Attenuate the Effect of Taxes on Corporate Risk-taking?

Oßwald¹,

Sureth-Sloane

2018

SSRN Journal

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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. AbstractThis study examines whether country-specific risk attenuates the association between tax policies and corporate risk-taking. We define country-specific risk (political and fiscal budget risk) as taxpayer's risk that tax refunds on losses cannot be paid due to the institutional environment or fiscal reasons. We exploit a cross-country panel with 234 changes in corporate tax rates and 49 changes in loss offset rules. We investigate whether government risk-sharing via loss offset rules and tax rates affects risk-taking conditional on country risk. We also examine whether tax rate changes, that scale the risk-sharing effect, influence the propensity to conduct risky projects in different country-level risk environments. Our results suggest that country-level risk fully attenuates the previously documented association between tax policies and corporate risk-taking. It attenuates both the effectiveness of loss offset rules and tax rate changes on corporate risk-taking. While changes in tax policy are attractive to policymakers because alternative instruments to encourage risk-taking cannot as easily be adjusted, we provide significant evidence that country risk considerably limits policymakers' ability to induce firm risk-taking via changes in tax policies.

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Does freezing a defined benefit pension plan affect firm risk?

Cited by 73 publications

References 26 publications

CEO Inside Debt Incentives and Corporate Tax Sheltering

CEO Inside Debt Incentives and Corporate Tax Sheltering

Political association, managerial power heterogeneity, and corporate risk-taking in China

Do Country Risk Factors Attenuate the Effect of Taxes on Corporate Risk-taking?

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