Labor Unemployment Insurance and Pension Asset Allocations

60 Pages Posted: 3 Jun 2020

See all articles by Yina Liang

Yina Liang

Zhejiang University of Finance and Economics

Paraskevi Vicky Kiosse

University of Exeter Business School

Monika Tarsalewska

University of Exeter Business School

Date Written: May 4, 2020

Abstract

This paper examines the effect of unemployment risk on pension investment decisions of defined benefit (DB) pension plans. In particular, we examine whether unemployment insurance (UI) benefits result in increases in pension investment risk. Using fixed-effects and difference-in-difference analysis, we find evidence that firms take higher pension investment risk by investing more heavily in equities after unemployment insurance benefits increase. These results, which are robust to a number of sensitivity tests, are consistent with the notion that firms undertake more risk when the costs of unemployment decrease. In additional analyses, we find that changes in unemployment risk also affect other pension-related decisions such as earnings management using the expected rate of return on pension plan assets (ERR) and DB plan freezes.

Keywords: Unemployment Risk, Pension Investments, Corporate Financial Policies, Earnings Management, Pension Plan Freezes

JEL Classification: J01, G32, M41, M54

Suggested Citation

Liang, Yina and Kiosse, Paraskevi Vicky and Tarsalewska, Monika, Labor Unemployment Insurance and Pension Asset Allocations (May 4, 2020). Available at SSRN: https://ssrn.com/abstract=3593225 or http://dx.doi.org/10.2139/ssrn.3593225

Yina Liang

Zhejiang University of Finance and Economics ( email )

Hangzhou, Zhejiang Province 310018
China

Paraskevi Vicky Kiosse

University of Exeter Business School ( email )

Exeter, EX4 4PU
United Kingdom

Monika Tarsalewska (Contact Author)

University of Exeter Business School ( email )

Streatham Court, Streatham Campus,
Rennes Drive
Exeter, Devon EX4 4PU
United Kingdom

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