Corruption, Governance, and Public Pension Funds

57 Pages Posted: 11 Oct 2016

See all articles by Hongxian Zhang

Hongxian Zhang

Missouri University of Science and Technology

Liang Guo

California State University, East Bay

Maggie Hao

University of Houston, Clear Lake - School of Business

Date Written: September 8, 2016

Abstract

We examine the effects of state corruption as well as political and governance factors on U.S. public pension funds. We find that pension funds in states with more corruption have lower performance; a one standard deviation increase in corruption is associated with a decrease in annual returns of at least 17 basis points, and this relation is robust to state-level and pension-level fixed effects. Pensions located in more corrupt jurisdictions also invest a larger fraction of their assets in equities. We find that having a new treasurer decreases the negative effects of corruption, suggesting that more frequent changes in administrations are beneficial in corrupt jurisdictions. Governance-related variables and political affiliation variables are by themselves not significantly related to pension returns, although these variables are associated with differences in asset allocation.

Keywords: Public Pensions, Corruption, Politics, Governance

JEL Classification: G23, G28, H75

Suggested Citation

Zhang, Hongxian and Guo, Liang and Hao, Maggie, Corruption, Governance, and Public Pension Funds (September 8, 2016). Available at SSRN: https://ssrn.com/abstract=2849907 or http://dx.doi.org/10.2139/ssrn.2849907

Hongxian Zhang

Missouri University of Science and Technology ( email )

1870 Miner Cir

Liang Guo (Contact Author)

California State University, East Bay ( email )

Maggie Hao

University of Houston, Clear Lake - School of Business

2700 Bay Area Boulevard
Houston, TX 77058
United States

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