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Corruption, governance, and public pension funds

Author

Listed:
  • Hongxian Zhang

    (Missouri University of Science and Technology)

  • Liang Guo

    (California State University)

  • Maggie Hao

    (University of Houston Clear Lake)

Abstract

We examine the effects of state corruption as well as political and governance factors on U.S. public pension funds. We find that pension funds in states with more corruption have lower performance; a one standard deviation increase in corruption is associated with a decrease in annual returns of at least 14 basis points, and this relationship is robust to state-level and pension-level fixed effects. Pensions located in more corrupt jurisdictions also invest a larger fraction of their assets in equities. We find that having a new treasurer decreases the negative effects of corruption, suggesting that more frequent changes in administrations are beneficial in corrupt jurisdictions. Governance-related variables and political affiliation variables are by themselves not significantly related to pension returns, although these variables are associated with differences in asset allocation.

Suggested Citation

  • Hongxian Zhang & Liang Guo & Maggie Hao, 2018. "Corruption, governance, and public pension funds," Review of Quantitative Finance and Accounting, Springer, vol. 51(4), pages 883-919, November.
    • Handle: RePEc:kap:rqfnac:v:51:y:2018:i:4:d:10.1007_s11156-017-0691-4
    DOI: 10.1007/s11156-017-0691-4
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    3. Khanh Hoang, 2022. "Silent but deadly: Political corruption and voluntary ESG disclosure in the United States," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 2775-2793, October.

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    More about this item

    Keywords

    Public pensions; Corruption; Politics; Governance;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare

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