Pension Investment Decision Under Defined Benefit Pension Plan
27 Pages Posted: 20 May 2020
Date Written: April 23, 2020
This paper examines the driven factor for asset investment under the defined benefit pension plan, especially in the underfunded case, there are two mechanisms of motivation support these driven factors, one is risk management and the other one is risk-shifting. This paper finds that if the corporate has inadequate cash inflows or assets, or plenty of cash outflows or obligation, or has an optimistic view about future financial health, these corporates would not likely exchange capital gain to the extra investment risk, these corporations would invest more on conservative assets. This finding shares the same idea with risk management, the corporate would like to bear certain risk, if the corporate facing financial pressure in the current period, they would not likely transfer this kind of pressure to the investment risk, rather than control a certain amount of risk by giving up accordingly investment gain.
Keywords: investment decision, underfund, risk shifting, risk management defined benefit pension plan
JEL Classification: G30
Suggested Citation: Suggested Citation