Pension Investment Decision Under Defined Benefit Pension Plan

27 Pages Posted: 20 May 2020

See all articles by Yuqi Zhang

Yuqi Zhang

University of Western Ontario

Date Written: April 23, 2020

Abstract

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

Zhang, Yuqi, Pension Investment Decision Under Defined Benefit Pension Plan (April 23, 2020). Available at SSRN: https://ssrn.com/abstract=3583856 or http://dx.doi.org/10.2139/ssrn.3583856

Yuqi Zhang (Contact Author)

University of Western Ontario ( email )

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Suite 2
London, Ontario N6A 5B8
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