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Pension Regulation, Firm Borrowing, and Investment Risk

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  • Margaret J. Lay

Abstract

This article builds a new model of capital structure and nonpension investment decisions to show that regulatory and investment incentives created by accrued pension obligations exacerbate traditional agency problems between stockholders and bondholders. The article identifies conditions under which firms with accrued pension liabilities have an incentive to choose an overly risky capital structure, invest in risky projects with negative net present value, and/or under‐fund their pension accounts.

Suggested Citation

  • Margaret J. Lay, 2020. "Pension Regulation, Firm Borrowing, and Investment Risk," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 87(4), pages 935-968, December.
    • Handle: RePEc:bla:jrinsu:v:87:y:2020:i:4:p:935-968
    DOI: 10.1111/jori.12299
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    References listed on IDEAS

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