Corporate Governance and Risk-Taking in Pension Plans: Evidence from Defined Benefit Asset Allocations
Hieu V. Phan
University of Massachusetts Lowell
Shantaram P. Hegde
University of Connecticut - School of Business
January 23, 2012
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
Based on theoretical advice and empirical evidence suggesting that risk-taking in asset allocation enhances pension returns, we evaluate empirically whether good corporate governance leads to a larger allocation of pension assets to risky securities as compared to safe investments. Our findings suggest that firms with good external and internal corporate governance take more risk by investing heavily in equities and allocating a smaller share of the plan assets to cash, government debt, and insurance company accounts. The main underlying mechanisms appear to be higher investment returns and better pension funding status associated with higher equity and lower safe asset allocations.
Keywords: Asset allocation, pension, corporate governance, risk-taking
JEL Classification: G3, G31, G34Accepted Paper Series
Date posted: February 24, 2012 ; Last revised: June 23, 2013
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