Pension Funding and Capital Market Development

43 Pages Posted: 23 Mar 2010 Last revised: 31 Aug 2010

See all articles by Jörg Rocholl

Jörg Rocholl

ESMT European School of Management and Technology; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Taro Niggemann

Goethe University Frankfurt

Date Written: August 1, 2010


This paper provides evidence that a country’s pension system is an important determinant for the development of its capital markets. Employing a unique event list of 87 pension funding reforms in 57 countries between 1976 and 2007, we find that pension funding reforms lead to larger stock and corporate bond markets relative to the time before the reforms and relative to other countries without such reforms. This effect is particularly driven by an increase in the post-reform primary market issuing activity and cannot be explained by a simultaneous political move to more market-oriented reforms in these countries in general. We find that the effect is particularly significant in emerging markets with a priori less developed capital markets. Further evidence from a cross-sectional analysis suggests that the degree of pension funding is an important determinant of the cross-country variation in capital market development. It remains robust even after controlling for other important determinants of capital market development such as legal origin and trade openness.

Keywords: Capital Market Development, Pension Funding, Pension Reform, Causality, Event Study, Panel Estimation, Emerging Markets

JEL Classification: G15, G23, O16

Suggested Citation

Rocholl, Joerg and Niggemann, Taro, Pension Funding and Capital Market Development (August 1, 2010). Available at SSRN: or

Joerg Rocholl (Contact Author)

ESMT European School of Management and Technology ( email )

Schlossplatz 1


Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Taro Niggemann

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323

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