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Pension Funding, Pension Asset Allocation, and Corporate Finance: Evidence From Individual Company Data

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  • Benjamin M. Friedman

Abstract

This paper examines the relationship between U.S. corporations' management of their pension plans and their management of the more familiar aspects of corporate financial structure. The chief conclusion, on the basis of data for 7,828 pension plans sponsored by 1,836 companies and their subsidiaries, is that corporations do not manage the pension plans which they sponsor as if these plans had nothing to do with the corporation. Different responses appear to characterize firms' behavior in different contexts, but the evidence persistently indicates clear relationships between decisions about pension assets and liabilities and decisions about the other assets and liabilities of the firm. At the same time, the pattern of these relation- ships is, more often than not, inconsistent with familiar hypotheses that have emerged thus far in the theoretical literature analyzing pension aspects of corporate finance. Hence the conclusion from the data is also that the connections between pension decisions and corporate financial decisions in the more conventional sense are, at least as yet, not well understood.

Suggested Citation

  • Benjamin M. Friedman, 1982. "Pension Funding, Pension Asset Allocation, and Corporate Finance: Evidence From Individual Company Data," NBER Working Papers 0957, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0957
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    References listed on IDEAS

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    1. Irwin Tepper, 1981. "Taxation and Corporate Pension Policy," NBER Working Papers 0661, National Bureau of Economic Research, Inc.
    2. Feldstein, Martin & Seligman, Stephanie, 1981. "Pension Funding, Share Prices, and National Savings," Journal of Finance, American Finance Association, vol. 36(4), pages 801-824, September.
    3. Oldfield, George S, Jr, 1977. "Financial Aspects of the Private Pension System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(1), pages 48-54, February.
    4. Pesando, James E, 1984. "Employee Evaluation of Pension Claims and the Impact of Indexing Initiatives," Economic Inquiry, Western Economic Association International, vol. 22(1), pages 1-17, January.
    5. Tepper, Irwin & Affleck, A R P, 1974. "Pension Plan Liabilities and Corporate Financial Strategies," Journal of Finance, American Finance Association, vol. 29(5), pages 1549-1564, December.
    6. Sharpe, William F., 1976. "Corporate pension funding policy," Journal of Financial Economics, Elsevier, vol. 3(3), pages 183-193, June.
    7. Tepper, Irwin, 1981. "Taxation and Corporate Pension Policy," Journal of Finance, American Finance Association, vol. 36(1), pages 1-13, March.
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    Cited by:

    1. Fabio B. Gaertner & Daniel P. Lynch & Mary E. Vernon, 2020. "The Effects of the Tax Cuts & Jobs Act of 2017 on Defined Benefit Pension Contributions," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 1990-2019, December.

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