Pension Overhang and Corporate Investment

43 Pages Posted: 4 May 2020

See all articles by Emmanuel Alanis

Emmanuel Alanis

Texas State University

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business

Peter Simasek

Georgia Institute of Technology - Scheller College of Business

Date Written: March 24, 2020

Abstract

We exploit an exogenous, universal increase in discount rates mandated by the Moving Ahead for Progress Act (MAP-21) to identify the impact of pension overhang on investment. We find that firms with large unfunded pension liabilities increase investment by 13% after the MAP-21 induced decrease in pension liabilities. The effects are more pronounced for ex- ante financially constrained firms, yet pension-related cash flows have a minimal impact on investment. Credit ratings of affected firms improve while CEOs with more pay-for- performance and longer horizon increase investment to a greater extent after MAP-21. Our results highlight the role of pension overhang on investment.

Keywords: Pension liability, corporate investment, overhang, leverage

JEL Classification: G31, G32

Suggested Citation

Alanis, Emmanuel and Chava, Sudheer and Simasek, Peter, Pension Overhang and Corporate Investment (March 24, 2020). Available at SSRN: https://ssrn.com/abstract=3560534 or http://dx.doi.org/10.2139/ssrn.3560534

Emmanuel Alanis

Texas State University ( email )

San Marcos, TX 78666
United States

Sudheer Chava

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

HOME PAGE: http://www.prism.gatech.edu/~schava6/

Peter Simasek (Contact Author)

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
17
Abstract Views
165
PlumX Metrics