Effects of pension fund freezing on firm performance and risk

Champagne, Claudia; Chrétien, Stéphane; Coggins, Frank

doi:10.1002/cjas.1338

Cited by 8 publications

(6 citation statements)

References 36 publications

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“…The literature has established that the static nature of the CAPM or the extended FF model may be impregnated with specification errors [3,4,5,6]. Recent applications of conditional models, for instance, include pension fund performance and the analysis of the impact of the informational content of extra-financial performance scores on systematic risk (e.g., [48,49]). However, none of these studies provide specification error tests or discuss possible endogeneity issues.…”

Section: Five-factor Augmented Fama-french Conditional Modelmentioning

confidence: 99%

The conditional Fama-French model and endogenous illiquidity: A robust instrumental variables test

et al. 2019

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We investigate conditional specifications of the five-factor Fama-French (FF) model, augmented with traditional illiquidity measures. The motivation for this time-varying methodology is that the traditional static approach of the FF model may be misspecified, especially for the endogenous illiquidity measures. We focus on the time-varying nature of the Jensen performance measure α and the market systematic risk sensitivity β, as these parameters are essentially universal in asset pricing models. To tackle endogeneity and other specification errors, we rely on our robust instrumental variables (RIV) algorithm implemented via a GMM approach. In this dynamic or time-varying conditional context, we generally find that the most significant factor is the market one, but illiquidity may matter depending on which states or estimation methods we consider. In particular, sectors whose returns embed a market illiquidity premium are more exposed to a binding funding constraint in times of crisis, which leads to deleveraging and a resulting decrease in systematic risk.

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Section: Five-factor Augmented Fama-french Conditional Modelmentioning

confidence: 99%

The conditional Fama-French model and endogenous illiquidity: A robust instrumental variables test

et al. 2019

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“…Other evidences to analyse the relationship between risk assessment and financial performance are cited by Ahmad Abdel Rahim& et al [1] who used multi regression analysis to investigate the impact of liquidity risk and solvency on financial performance measured by (return on asset and earning per share); the findings indicated that the financial assessment is a statistically associated with size, liquidity and solvency of Jordanian manufacturing firms on Amman Stock Exchange. Recently, Claudia Champagne & et al [6] used conditional probability model to evaluate the impact of pension fund freeze on return and risk. It was found that there is an insignificant relationship between pension fund freeze on systematic risk, but significantly reduced short-term residual risk.…”

Section: Other Sectorsmentioning

confidence: 99%

“…• The partial eta squared of the covariate variables in terms of x 1 , x 2 ,lnx 3 and the interactions between x 1 x 2 and lnx 2 account for (0.057-0.212-0.210-0.013) of the variation in the total dependent variables, i.e., from the medium effect to large effect, finally to small effect. From table (6), the researcher revealed that:…”

Section: Glm Multivariate Analysismentioning

confidence: 99%

“…From table (6), the researcher revealed that:  The covariate Variables ST ROE(X 1) , STROA (X 2 ,) natural logarithm of total assets (lnX 3) and the interactions between x 1 x 2 and lnx 3 explain (5-56.4%) from total variation of dependent variables in terms of ROE (Y 1) , ROA( Y 2) , and Liquidity Y 3 .  There is a significant effect of the covariate Variables in terms of X 1 , X 2 , and lnx 3 on the dependent variables in terms of (Y 1 ), and (Y 2 ), at a significant level less than (0.001).…”

Section: Glm Multivariate Analysismentioning

confidence: 99%

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Risk Performance on Financial Assessment of Insurance Firms in Egypt

Eladly¹

2022

ujaf

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The subject matter of this study is the analysis of the relationship between risk assessment and firm size on financial performance. The population encompasses thirty-nine listed insurance firms in Egypt during the period 1999 -2019, whereas a sample of nineteen insurance companies was selected. The financial assessment is a dependent variable, while the independent variable is risk assessment. This study used general linear multivariate analysis and descriptive statistics. The article is an attempt to investigate the relationship between risk assessment and firm size on financial assessment of insurance sector in Egypt. The results indicate that there is significant positive linear relationship between standard deviation of return on equity, standard deviation of return on asset, and natural logarithm of total assets with return on equity. Moreover, there is significant positive linear relationship between standard deviation of return on equity, standard deviation of return on asset and natural logarithm of total assets where on return on asset. Therefore, there is significant positive linear relationship between standard deviation of return on equity and standard deviation of return on asset on liquidity. Nevertheless, there is a negative relationship between natural logarithm of total assets.

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“…surge in plan freezes to stop future benefit accruals as an attempt to reduce risk in the pension scheme (Munnell & Soto, 2007). Further research on pension freezes followed: agency conflicts and directors in relation to DB pension freezes (Vafeas & Vlittis, 2018); executive compensation manipulation before freezes (Stefanescu et al, 2018); actuarial assumption manipulation before freezes (Comprix & Muller, 2011); and concerning firm value and performance (Champagne et al, 2017;Yu, 2016). Even after a freeze, the plan sponsor must continue to bear the pension risk for the vested and retired participants over decades, which has led to a stream of literature covering internal pension risk management concerning corporate financing policy for investment opportunities.…”

Section: Background Literature and Hypothesis Developmentmentioning

confidence: 99%

Defined benefit pension de‐risking and corporate risk‐taking

Silverstein

2021

Financial Management

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U.S. corporate sponsors of defined benefit (DB) pension plans in recent years have been de-risking by paying premiums to transfer their pension plan assets and liabilities to the balance sheets of third-party insurers. The passage of the Moving Ahead for Progress in the 21st Century Act (MAP-21) in 2012 provided the pension funding relief necessary to make de-risking a mainstream corporate activity. This study provides the first empirical analysis of plan and firm factors that cause a firm to de-risk its DB pension plans. We find a positive association between de-risking and aggregate corporate risk-taking. The results also show that de-risking, on average, has a stronger effect on corporate financing policy than investment policy, leading to an increase in credit risk reflected in a firm's credit rating and cost of debt. Also, we present suggestive evidence that the reallocation of pension risk increases firm idiosyncratic risk and excess returns.

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Effects of pension fund freezing on firm performance and risk

Cited by 8 publications

References 36 publications

The conditional Fama-French model and endogenous illiquidity: A robust instrumental variables test

The conditional Fama-French model and endogenous illiquidity: A robust instrumental variables test

Risk Performance on Financial Assessment of Insurance Firms in Egypt

Defined benefit pension de‐risking and corporate risk‐taking

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