The Impact of Pension Systems on Financial Development: An Empirical Study

Michael Faure and Niels Philipsen (ed),The Role of Law and Regulation in Sustaining Financial Markets, Routledge, August 2014

27 Pages Posted: 1 Sep 2014 Last revised: 10 Apr 2023

See all articles by Shouji Sun

Shouji Sun

University of International Business and Economics (UIBE)

Jiye Hu

China University of Political Science and Law, Business School; Business School

Date Written: August 16, 2014

Abstract

The impact of pension assets on financial development is both quantitatively and qualitatively. On quantitatively, pension funds increase capital supply to financial market. On qualitatively, pension funds as institutional investors could promote corporate governance, information disclosure and transaction efficiency. Based on regression results of 55 countries and regions, we find that different pension systems formed different size of pension fund; every 1% increase of the pension funds’ assets could bring about 0.15%-0.23% increase of the market value, which could explain cross-countries difference of financial development. Based on panel data analysis, we find that the impact of pension fund on financial development is very significant especially in civil law and underdeveloped countries. By using co-integration analysis and vector auto regression model(VAR)with time series data of Chile, we find positive relationship between pension funds and financial development again. The empirical results indicate that legal origin, endowment and pension fund views are not exclusive but compatible. A country cannot change its legal origin and endowment, but it can change pension policies and reform social security system. A funded pension system with accumulates pension assets could promote a country’s financial development and economic growth.

Keywords: Legal Origin, Endowment, Pension Fund System, Financial Development

JEL Classification: G11, G12, G15, K23

Suggested Citation

Sun, Shouji and Hu, Jiye and Hu, Jiye, The Impact of Pension Systems on Financial Development: An Empirical Study (August 16, 2014). Michael Faure and Niels Philipsen (ed),The Role of Law and Regulation in Sustaining Financial Markets, Routledge, August 2014, Available at SSRN: https://ssrn.com/abstract=2481749 or http://dx.doi.org/10.2139/ssrn.2481749

Shouji Sun

University of International Business and Economics (UIBE) ( email )

10, Huixin Dongjie
Changyang District
Beijing, Beijing 100029
China

Jiye Hu (Contact Author)

China University of Political Science and Law, Business School ( email )

No. 25 Xi Tucheng Road
Haidian District
Beijing, 100088
China

Business School ( email )

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