IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v58y2019icp27-42.html
   My bibliography  Save this article

Are pension contributions a threat to shareholder payouts?

Author

Listed:
  • Armitage, Seth
  • Gallagher, Ronan

Abstract

UK companies have been making large contributions to reduce the deficits of their pension funds, and are believed to fund such contributions in part by reducing dividends. Using data from 2003 to 16, we find little evidence that large deficit-reduction contributions are associated with reductions in regular dividends, though we find some restraint in dividend increases and total payout. Most companies make large contributions when they have healthy cash flows and strong profitability, or inflows from disposals of assets. This suggests that the Pensions Regulator allows companies flexibility regarding the timing of contributions.

Suggested Citation

  • Armitage, Seth & Gallagher, Ronan, 2019. "Are pension contributions a threat to shareholder payouts?," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 27-42.
    • Handle: RePEc:eee:corfin:v:58:y:2019:i:c:p:27-42
    DOI: 10.1016/j.jcorpfin.2019.04.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0929119918300804
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcorpfin.2019.04.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Bunn, Philip & Smietanka, Pawel & Mizen, Paul, 2018. "Growing pension deficits and the expenditure decisions of UK companies," Bank of England working papers 714, Bank of England.
    2. Skinner, Douglas J., 2008. "The evolving relation between earnings, dividends, and stock repurchases," Journal of Financial Economics, Elsevier, vol. 87(3), pages 582-609, March.
    3. Gustavo Grullon & Roni Michaely, 2002. "Dividends, Share Repurchases, and the Substitution Hypothesis," Journal of Finance, American Finance Association, vol. 57(4), pages 1649-1684, August.
    4. Lie, Erik, 2005. "Operating performance following dividend decreases and omissions," Journal of Corporate Finance, Elsevier, vol. 12(1), pages 27-53, December.
    5. Andres, Christian & Doumet, Markus & Fernau, Erik & Theissen, Erik, 2015. "The Lintner model revisited: Dividends versus total payouts," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 56-69.
    6. Söhnke M. Bartram, 2016. "Corporate Post-Retirement Benefit Plans and Leverage," Review of Finance, European Finance Association, vol. 20(2), pages 575-629.
    7. Philip Bunn & Kamakshya Trivedi, 2005. "Corporate expenditures and pension contributions: evidence from UK company accounts," Bank of England working papers 276, Bank of England.
    8. Roni Michaely & Michael R. Roberts, 2012. "Corporate Dividend Policies: Lessons from Private Firms," Review of Financial Studies, Society for Financial Studies, vol. 25(3), pages 711-746.
    9. Goergen, Marc & Renneboog, Luc & Correia da Silva, Luis, 2005. "When do German firms change their dividends?," Journal of Corporate Finance, Elsevier, vol. 11(1-2), pages 375-399, March.
    10. Andrew Benito & Garry Young, 2003. "Hard Times or Great Expectations? Dividend Omissions and Dividend Cuts by UK Firms," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 65(5), pages 531-555, December.
    11. Charles Sutcliffe, 2016. "Finance and Occupational Pensions," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-94863-5.
    12. Paraskevi Kiosse & Ken Peasnell, 2009. "Have changes in pension accounting changed pension provision? A review of the evidence," Accounting and Business Research, Taylor & Francis Journals, vol. 39(3), pages 255-267.
    13. Daniel, Naveen D. & Denis, David J. & Naveen, Lalitha, 2008. "Do firms manage earnings to meet dividend thresholds," Journal of Accounting and Economics, Elsevier, vol. 45(1), pages 2-26, March.
    14. Viral V. Acharya & Bart M. Lambrecht, 2015. "A Theory of Income Smoothing When Insiders Know More Than Outsiders," The Review of Financial Studies, Society for Financial Studies, vol. 28(9), pages 2534-2574.
    15. Bart M. Lambrecht & Stewart C. Myers, 2012. "A Lintner Model of Payout and Managerial Rents," Journal of Finance, American Finance Association, vol. 67(5), pages 1761-1810, October.
    16. Joshua D. Rauh, 2006. "Investment and Financing Constraints: Evidence from the Funding of Corporate Pension Plans," Journal of Finance, American Finance Association, vol. 61(1), pages 33-71, February.
    17. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    18. DeAngelo, Harry & DeAngelo, Linda & Skinner, Douglas J, 1992. "Dividends and Losses," Journal of Finance, American Finance Association, vol. 47(5), pages 1837-1863, December.
    19. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    20. Tor‐Erik Bakke & Toni M. Whited, 2012. "Threshold Events and Identification: A Study of Cash Shortfalls," Journal of Finance, American Finance Association, vol. 67(3), pages 1083-1111, June.
    21. Mark T. Leary & Roni Michaely, 2011. "Determinants of Dividend Smoothing: Empirical Evidence," Review of Financial Studies, Society for Financial Studies, vol. 24(10), pages 3197-3249.
    22. Weixi Liu & Ian Tonks, 2013. "Pension Funding Constraints and Corporate Expenditures," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(2), pages 235-258, April.
    23. Bartram, Söhnke M., 2018. "In good times and in bad: Defined-benefit pensions and corporate financial policy," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 331-351.
    24. Wintoki, M. Babajide & Linck, James S. & Netter, Jeffry M., 2012. "Endogeneity and the dynamics of internal corporate governance," Journal of Financial Economics, Elsevier, vol. 105(3), pages 581-606.
    25. Söhnke M. Bartram, 2017. "Corporate Postretirement Benefit Plans and Real Investment," Management Science, INFORMS, vol. 63(2), pages 355-383, February.
    26. Dennis Oswald & Steven Young, 2008. "Tax‐efficient irregular payout methods: The case of B share schemes and capital repayments via a court‐approved scheme of arrangement," Accounting and Business Research, Taylor & Francis Journals, vol. 38(1), pages 49-70.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Goto, Shingo & Yanase, Noriyoshi, 2021. "Pension return assumptions and shareholder-employee risk-shifting," Journal of Corporate Finance, Elsevier, vol. 70(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Goto, Shingo & Yanase, Noriyoshi, 2021. "Pension return assumptions and shareholder-employee risk-shifting," Journal of Corporate Finance, Elsevier, vol. 70(C).
    2. Fernau, Erik & Hirsch, Stefan, 2019. "What drives dividend smoothing? A meta regression analysis of the Lintner model," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 255-273.
    3. Driver, Ciaran & Grosman, Anna & Scaramozzino, Pasquale, 2020. "Dividend policy and investor pressure," Economic Modelling, Elsevier, vol. 89(C), pages 559-576.
    4. Andres, Christian & Doumet, Markus & Fernau, Erik & Theissen, Erik, 2015. "The Lintner model revisited: Dividends versus total payouts," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 56-69.
    5. Alice Bonaimé & Jarrad Harford & Jarrad Harford, 2020. "Payout Policy Trade-Offs and the Rise of 10b5-1 Preset Repurchase Plans," Management Science, INFORMS, vol. 66(6), pages 2762-2786, June.
    6. Francisca Bremberger & Carlo Cambini & Klaus Gugler & Laura Rondi, 2013. "Dividend Policy in Regulated Firms," RSCAS Working Papers 2013/53, European University Institute.
    7. du Jardin, Philippe & Séverin, Eric, 2011. "Dividend policy," MPRA Paper 44382, University Library of Munich, Germany.
    8. Renneboog, Luc & Szilagyi, Peter G., 2020. "How relevant is dividend policy under low shareholder protection?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 64(C).
    9. Tahir, Muhammad & Ibrahim, Haslindar & Zulkafli, Abdul Hadi & Mushtaq, Muhammad, 2020. "Corruption, national culture, law and dividend repatriation policy," Journal of Multinational Financial Management, Elsevier, vol. 57.
    10. Adhikari, Binay K. & Agrawal, Anup, 2018. "Peer influence on payout policies," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 615-637.
    11. repec:cep:stiecm:/2014/577 is not listed on IDEAS
    12. Hwang Hee Lee & Frederick Dongchuhl Oh, 2022. "The role of credit default swaps in determining corporate payout policy," Financial Management, Financial Management Association International, vol. 51(2), pages 635-661, June.
    13. Bunn, Philip & Smietanka, Pawel & Mizen, Paul, 2018. "Growing pension deficits and the expenditure decisions of UK companies," Bank of England working papers 714, Bank of England.
    14. Jacob, Martin & Alstadsæter, Annette, 2013. "Payout policies of privately held firms: Flexibility and the role of income taxes," arqus Discussion Papers in Quantitative Tax Research 152, arqus - Arbeitskreis Quantitative Steuerlehre.
    15. Christian Andres & André Betzer & Inga Bongard & Marc Goergen, 2019. "Dividend policy, corporate control and the tax status of the controlling shareholder," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(2), pages 157-189, June.
    16. Seo, Myung Hwan & Shin, Yongcheol, 2016. "Dynamic panels with threshold effect and endogeneity," Journal of Econometrics, Elsevier, vol. 195(2), pages 169-186.
    17. Renneboog, Luc & Szilagyi, Peter, 2020. "How relevant is dividend policy under low shareholder protection?," Other publications TiSEM 9fab895c-69f2-4056-8df8-8, Tilburg University, School of Economics and Management.
    18. Basil Al-Najjar & Yacine Belghitar, 2012. "The information content of cashflows in the context of dividend smoothing," Economic Issues Journal Articles, Economic Issues, vol. 17(2), pages 57-70, September.
    19. Paul McGuinness & Kevin Lam & João Vieito, 2015. "Gender and other major board characteristics in China: Explaining corporate dividend policy and governance," Asia Pacific Journal of Management, Springer, vol. 32(4), pages 989-1038, December.
    20. Ha, Chang Yong & Im, Hyun Joong & Kang, Ya, 2017. "Sticky dividends: A new explanation," Finance Research Letters, Elsevier, vol. 23(C), pages 69-79.
    21. Yelena Larkin & Mark T. Leary & Roni Michaely, 2017. "Do Investors Value Dividend-Smoothing Stocks Differently?," Management Science, INFORMS, vol. 63(12), pages 4114-4136, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:58:y:2019:i:c:p:27-42. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.