Working Paper: CEPR ID: DP4932
Authors: Joo F. Cocco; Paolo Volpin
Abstract: This paper studies the governance of defined-benefit pension plans in the United Kingdom. We construct a governance measure, equal to the proportion of trustees of the pension plan who are also executive directors of the sponsoring company. Our findings indicate that pension plans of indebted companies with a higher proportion of insider-trustees: (i) invest a higher proportion of the pension plan assets into equities, (ii) contribute less into the pension plan, and (iii) have a larger dividend payout ratio. This evidence supports an agency view, whereby insider-trustees act in the interest of shareholders of the sponsoring company, and not necessarily pension plan members.
Keywords: corporate governance; defined benefits; insiders; pension plans; pension trustees
JEL Codes: G23; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| leverage ratio (G32) | fraction of pension plan assets invested in equities (G12) |
| pension plan contributions (J32) | dividend payouts (G35) |
| insider trustees (G34) | dividend payouts (G35) |
| insider trustees (G34) | fraction of pension plan assets invested in equities (G12) |
| insider trustees (G34) | pension plan contributions (J32) |