The Role of Pension Business Benefits in Institutional Block Ownership and Corporate Governance

Posted: 30 Jan 2020

See all articles by Jing Huang

Jing Huang

Virginia Polytechnic Institute & State University - Pamplin College of Business

Steven Matsunaga

University of Oregon

Zhi Jay Wang

University of Oregon - Charles H. Lundquist School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 30, 2019

Abstract

We investigate whether potential pension contracting benefits lead institutions that provide pension services to acquire ownership blocks in firms and the implications of such blockholdings on the firms’ corporate governance. We use the 2006 Pension Protection Act, which expanded pension participation in certain states, as a quasi-exogenous shock and find an increase in block ownership by pension-providing institutions in firms with substantial operations in affected states. Further, we find that the acquisition of a large block increases the likelihood that the institution will provide future pension services to the firm. With regard to corporate governance, we find that the acquisition of large pension blockholdings is associated with higher CEO pay and lower CEO turnover following poor financial performance. However, contrary to the prediction of the private benefits hypothesis, we do not find consistent evidence that large pension blockholdings are associated with declining firm profitability, suggesting that pension institutions are incentivized to exert monitoring to preserve the investment value of their blockholdings. Overall, our evidence is consistent with pension service institutions acquiring ownership blocks to obtain pension contracts, but our evidence does not support the prediction that they use their influence to compromise shareholder value.

Keywords: block ownership, corporate governance, institutional investor, pension

JEL Classification: G30; M41

Suggested Citation

Huang, Jing and Matsunaga, Steven and Wang, Zhi Jay, The Role of Pension Business Benefits in Institutional Block Ownership and Corporate Governance (December 30, 2019). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3516255

Jing Huang (Contact Author)

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

250 Drillfield Drive
Blacksburg, VA 24061
United States

Steven Matsunaga

University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Zhi Jay Wang

University of Oregon - Charles H. Lundquist School of Business ( email )

1208 University of Oregon
Eugene, OR 97403-1208
United States

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