Sponsoring company finance and investment and defined benefit pension scheme deficits
AbstractThis paper presents a model of the interaction of a company’s financial and real investment decisions with the financing of its defined benefit pension plan. The pension plan deficit is a debt of the company, with explicit funding requirements and priority in the event of company insolvency. Pension plan deficits and options on future deficits and surpluses affect investment incentives as does the size and composition of company debt. We illustrate the incentives for the firm to pay dividends rather than fund the pension plan and the general incentives to overfund the pension plan. We also illustrate the impact of pension benefit insurance and minimum funding requirements.
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Bibliographic InfoPaper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 24699.
Length: 32 pages
Date of creation: 10 Aug 2004
Date of revision:
Find related papers by JEL classification:
- F3 - International Economics - - International Finance
- G3 - Financial Economics - - Corporate Finance and Governance
- J1 - Labor and Demographic Economics - - Demographic Economics
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