Hostname: page-component-cd9895bd7-7cvxr Total loading time: 0 Render date: 2024-12-27T03:35:00.343Z Has data issue: false hasContentIssue false
  • English
  • Français

Pension fund finance and sponsoring companies*

Published online by Cambridge University Press:  17 February 2012

E. PHILIP DAVIS  and
LEO DE HAAN
E. PHILIP DAVIS
Affiliation:
NIESR, Dean Trench Street, London SW1 (e-mail: e_philip_davis@msn.com)
LEO DE HAAN
Affiliation:
De Nederlandsche Bank, Economics and Research Division, Amsterdam, The Netherlands (e-mail: l.de.haan@dnb.nl)
Get access Rights & Permissions [Opens in a new window]

Abstract

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.

Keywords

G23G32Pension fundssponsoring companycapital structureasset allocation
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 11 , Issue 3 , July 2012 , pp. 439 - 463
Copyright
Copyright © Cambridge University Press 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alestalo, N. and Puttonen, V. (2006) Asset allocation in Finnish pension funds. Journal of Pension Economics and Finance, 5: 27–44.CrossRefGoogle Scholar
Arnott, R.J. and Gersovitz, M. (1980) Corporate financial structure and the funding of private pension plans. Journal of Public Economics, 13: 231–247.CrossRefGoogle Scholar
Bergstresser, D., Desai, M.A. and Rauh, J. (2006) Earnings manipulation, pension assumptions, and managerial investment decisions. Quarterly Journal of Economics, 121(1): 157–196.Google Scholar
Bernanke, B.S., Gertler, M. and Gilchrist, S. (1999) The financial accelerator in a quantitative business cycle framework. In Taylor, J.B. and Woodford, M. (eds), Handbook of Macroeconomics, Volume 1, Amsterdam: Elsevier, pp. 1341–1393.CrossRefGoogle Scholar
Bikker, J.A., Broeders, D., Hollanders, D. and Ponds, E. (2011) Pension funds’ asset allocation and participant age: a test of the life-cycle model. Journal of Risk and Insurance, forthcoming.Google Scholar
Black, F. (1980) The tax consequences of long run pension policy. Financial Analysts Journal, 36: 21–28.CrossRefGoogle Scholar
Bodie, Z., Light, J.O., Mørck, R. and Taggart, R.A. (1987) Corporate pension policy: an empirical investigation. In Bodie, Z., Shoven, J. and Wise, D. (eds), Issues in Pension Economics. Chicago, IL: University of Chicago Press, pp. 15–47.CrossRefGoogle Scholar
Broeders, D.W.G.A. (2010) Valuation of contingent pension liabilities and guarantees under sponsor default risk. Journal of Risk and Insurance, 77(4): 911–934.Google Scholar
Buzby, S.L. (1975) Company size, listed versus unlisted stocks, and the extent of financial disclosure. Journal of Accounting Research, 13(1): 16–37.CrossRefGoogle Scholar
Cocco, J.F. and Volpin, P. (2007) The corporate governance of defined benefit pension plans: evidence from the United Kingdom. Financial Analysts Journal, 63: 70–83.CrossRefGoogle Scholar
Cooper, R.W. and Ross, Th.W. (2002) Pensions: theories of underfunding. Labour Economics, 8: 667–689.CrossRefGoogle Scholar
Cooper, R.W. and Ross, Th.W. (2003) Protecting underfunded pensions, the role of guarantee funds. Journal of Pension Economics and Finance, 2: 247–272.Google Scholar
Davis, E.P. (2004) Is there a UK pensions crisis? Geneva Papers on Risk and Insurance, 3: 343–370.Google Scholar
De Haan, L. and Kakes, J. (2011) Momentum or contrarian investment strategies: evidence from Dutch institutional investors. Journal of Banking and Finance, 35(9): 2245–2251.CrossRefGoogle Scholar
de Dreu, J. and Bikker, J.A. (2009) Pension fund sophistication and investment policy, DNB Working Paper No. 211.Google Scholar
Friedman, B.M. (1983) Pension funding, pension asset allocation, and corporate finance: Evidence from individual company data. In Bodie, Z. and Shover, J. (eds), Financial Aspects of the U.S. Pension System. Chicago, IL: University of Chicago Press, pp. 107–147.Google Scholar
Gallo, J.G. and Lockwood, L.J. (1995) Determinants of pension funding and asset allocation decisions. Journal of Financial Services Research, 9: 143–158.CrossRefGoogle Scholar
Gertler, M. and Gilchrist, S. (1994) Monetary policy, business cycles, and the behaviour of small manufacturing firms. Quarterly Journal of Economics, 59: 309–340.Google Scholar
Harrison, J.M. and Sharpe, W.F. (1983) Optimal funding and asset allocation rules for defined benefit plans. In Bodie, Z. and Shoven, J.B. (eds), Financial Aspects of the US Pension System. Chicago, IL: University of Chicago Press, pp. 91–105.Google Scholar
Ippolito, R. (1985) Economic function of underfunded pension plans. Journal of Law and Economics, 28: 611–651.CrossRefGoogle Scholar
Kihlstrom, R.E. and Laffont, J.-J. (1979) A general equilibrium entrepreneurial theory of firm formation based on risk aversion. Journal of Political Economy, 87(4): 719–748.CrossRefGoogle Scholar
Kocken, Th.P. (2006) Curious Contracts: Pension Fund Redesign for the Future. ‘s-Hertogenbosch: Tutein Nolthenius.Google Scholar
Loderer, C. and Waelchli, U. (2010) Protecting minority shareholders: listed versus unlisted firms. Financial Management, 39(1): 33–57.Google Scholar
OPF&VB (2010) The Dutch Pension System: An Overview of the Key Aspects. Dutch Association of Company Pension Funds (Stichting voor Ondernemingspensioenfondsen, OPF) and Association of Industry-wide Pension Funds (Vereniging van Bedrijfstakpensioenfondsen, VB).Google Scholar
Organisation for Economic Cooperation and Development (OECD) (2006) Pension Markets in Focus, Issue 3, Paris.Google Scholar
Pensioen en Verzekeringskamer (PVK) (2002) Uitgangspunten voor de financiële opzet en positie van pensioenfondsen, 30 September.Google Scholar
Petersen, M. (1996) Allocating assets and discounting cash flows: pension plan finance. In Fernandez, P.A., Turner, J.A. and Hinz, R.P. (eds), Pensions, Savings, and Capital Markets. Washington, DC: US Department of Labor.Google Scholar
Rauh, J.D. (2006) Investment and financing constraints: evidence from the funding of corporate pension plans. Journal of Finance, 61: 33–71.CrossRefGoogle Scholar
Rauh, J.D. (2009) Risk shifting versus risk management: investment policy in corporate pension plans. Review of Financial Studies, 22(7): 2687–2734.CrossRefGoogle Scholar
Sharpe, W.F. (1976) Corporate pension funding policy. Journal of Financial Economics, 3(3): 183–193.CrossRefGoogle Scholar
Shivdasani, A. and Stefanescu, I. (2010) How do pensions affect corporate capital structure decisions? Review of Financial Studies, 23(3): 1287–1323.CrossRefGoogle Scholar
Tepper, I. (1981) Taxation and corporate pension finance. Journal of Finance, 36: 1–13.CrossRefGoogle Scholar
Treynor, J.L. (1977) The principles of corporate pension finance. Journal of Finance, 32(2): 627–638.CrossRefGoogle Scholar
Webb, D. (2007) Sponsoring company finance, investment and pension plan funding. The Economic Journal, 117: 738–760.CrossRefGoogle Scholar