Insider Ownership and Pension Funding: An Empirical Analysis

Few studies of pension funding consider the agency conflicts that might affect pension plan management and the role of pension plans within the overall capital structure of firms. The primary purpose of this study is to determine if a relation exists between the level of insider ownership and pension plan funding levels. The results of the study suggest that pension plan funding levels are affected by the levels of managerial stock ownership, but that the relation is non-linear. At the lowest levels of insider ownership, a significant and negative relation exists. However, at moderate levels of insider ownership, a positive relation is observed. Finally, no relation is observed at insider ownership levels above 10 percent. This may be a result of the competing effects offsetting one another. These results are consistent with both the alignment of interest hypothesis and the managerial entrenchment hypothesis regarding the impact of insider ownership and provide evidence that managers do make pension funding decisions based on overall corporate financial policies.