Managerial risk taking incentives and corporate pension policy

Anantharaman, Divya; Lee, Yong Gyu

doi:10.1016/j.jfineco.2013.10.009

Cited by 157 publications

(58 citation statements)

References 62 publications

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“…In the same way, results do not change when using alternative definitions of the marginal tax rate or the average tax rate. Another robustness test includes stock option-based incentives of CFOs and their interaction with distress risk as additional controls, following Anantharaman and Lee (2014). While the inclusion of these variables reduces the sample size significantly, the main results of the paper are robust to the additional controls.…”

Section: Robustness Testsmentioning

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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Section: Robustness Testsmentioning

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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“…Then we introduce a new method, scenario analysis. Combining the game model and the method, we make some analyses to study the relationship among 1 f , 2 f , and . We find out that 1 f and 2 f both have negative effects on  and  , which is to say that when we increase the penalty, the occurrence probability of rent-seeking behavior is decreasing.…”

Section: Discussionmentioning

confidence: 99%

“…We utilize scenario analysis to do sensitivity analysis, which can observe the change between each two variables directly. In the following part, we will take the influence factors, 1 f and 2 f , as example and observe the changes. (4) and (5) , which can be proved as follows:…”

Section: Scenario Analysismentioning

confidence: 99%

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Scenario Analysis of Enterprise Annuity Supervision in China

Zhang¹,

Qiao²,

Dong³

2014

Proceedings of the International Conference on Logistics, Engineering, Management and Computer Science

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Abstract-This paper studied the supervision of the enterprise annuity in China by the method of scenario analysis. Since supervision is closely related to the benefit distribution among the main participants of enterprise annuity, we present a game model to optimize the benefit distribution firstly. By calculating the model, we get the equilibrium solution of the game and find out the best probability of rent-seeking behavior. Then, we introduce a new method, scenario analysis to do the further research. Combining the game model and the method, we choose two factors, the penalty coefficient f1 and f2, as example to simulate scene. According to the scene simulated, we find that, as shown in Figure 1 and Figure 2, increasing the penalty coefficient f1 and f2 can ease the rent-seeking behavior. However, as the penalty coefficient f1 and f2 become larger, increasing them is no longer an effective way to prevent rent-seeking behavior.

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“…7 Further, pension beneficiaries have debt-like claims on a firm's pension assets. Consequently, corporate managers and owners have strong risk shifting incentives (that increase with financial distress) and tend to underfund DB pension plans (Anantharaman and Lee (2014) sponsor's balanced sheets -sponsors' leverage ratios are about 35% higher after incorporating pension assets and liabilities into the corporate capital structure (Shivdasani and Stefanescu (2010)). Even though a DB pension plan is legally considered a separate entity, but from an economic perspective pension benefits are an integral part of a firm's financial liabilities (Treynor (1977)).…”

Section: Managerial and Regulatory Pension Environments And Errsmentioning

confidence: 99%

Determinants of Expected Returns at Public Defined-Benefit Pension Plans

Aggarwal¹,

Goodell²

2015

Working Paper (Federal Reserve Bank of Cleveland)

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Estimated expected returns are important for pension plans, as they infl uence many plan characteristics including required asset levels, annual contributions, and the extent of plan under-or overfunding. Yet, there seems to be little prior literature on the factors infl uencing these estimated future returns. In an attempt to fi ll this gap, this paper presents the results of a panel analysis of data on the determinants of such returns used by US public defi ned-benefi t (DB) pension plans for the period 2001-2011. As expected, we fi nd that real return estimates by DB public pension funds are positively related to fund size, fund age, international asset diversifi cation, state income, and corruption levels. However, more interestingly and importantly, we document that real return estimates by public US DB pension funds are positively related to cultural measures of individualism and masculinity, and negatively related to uncertainty avoidance. These results should be of much interest not only to scholars and pension benefi ciaries, but also to fund managers, other capital market participants, and policymakers. JEL Classifi cations: H3; H4; H6; I00; J3 Keywords: public pensions, defi ned benefi t pensions, estimated returns, public policy, pension underfunding, fi nance and culture.

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Managerial risk taking incentives and corporate pension policy

Cited by 157 publications

References 62 publications

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

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

Scenario Analysis of Enterprise Annuity Supervision in China

Determinants of Expected Returns at Public Defined-Benefit Pension Plans

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