Risk-Shifting and Corporate Pension Plans: Evidence from a Natural Experiment

31 Pages Posted: 20 Dec 2017

See all articles by David Pedersen

David Pedersen

Rutgers School of Business-Camden

Date Written: December 18, 2017

Abstract

Using a natural experiment to identify the causal effect of an increase in default risk on firm actions, I find little evidence managers shift risk to corporate pension plans following an exogenous shock to the firm’s long-term liabilities. The finding is robust to focusing on firms where the incentive to engage in risk shifting is arguably the greatest, such as financially vulnerable firms and firms with fewer agency conflicts. This study casts doubt on the risk-shifting hypothesis and shows managers do not take risk-shifting actions that would increase shareholder value even when those actions pose little threat to managerial utility.

Keywords: Risk-Shifting, Pension Pan

JEL Classification: G32, J32

Suggested Citation

Pedersen, David, Risk-Shifting and Corporate Pension Plans: Evidence from a Natural Experiment (December 18, 2017). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=3089988

David Pedersen (Contact Author)

Rutgers School of Business-Camden ( email )

227 Penn Street
Camden, NJ 08102
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
106
Abstract Views
344
rank
256,824
PlumX Metrics