Corporate Expenditures and Pension Contributions: Evidence from UK Company Accounts
37 Pages Posted: 30 Dec 2005
Date Written: October 2005
This paper examines how corporate behaviour is related to financial pressure, where the financial pressure is on account of pension contributions to the company pension scheme. Using a large panel of quoted non-financial UK firms from 1983-2002, we estimate generalised methods of moments models for dividends and investment. Our results suggest that dividends are reduced in response to higher pension contributions. There is only weak evidence of any impact on investment. Companies that seek to tackle underfunding of defined benefit pension schemes by raising their contributions could pay lower dividends than they would have otherwise.
Keywords: financial pressure, balance-sheet adjustment, pension contributions
JEL Classification: G35, G31, G23.
Suggested Citation: Suggested Citation