Risk-Shifting and Corporate Pension Plans: Evidence from a Natural Experiment
31 Pages Posted: 20 Dec 2017
Date Written: December 18, 2017
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: Suggested Citation