Risk shifting versus risk management: Investment policy in corporate pension plans

Review of Financial Studies

Volumn 22, Issue 7, 2009, Pages 2687-2733

  Rauh, Joshua D ^a  

^a UNIVERSITY OF CHICAGO   (United States)

Author keywords

G11; G23; G32

Indexed keywords

EID: 84874710142     PISSN: 08939454     EISSN: 14657368     Source Type: Journal    
DOI: 10.1093/rfs/hhn068     Document Type: Article

References (59)

1. Acharya, V., H. Almeida and M. Campello. 2007. Is Cash Negative Debt? A Hedging Perspective on Corporate Financial Policies. Journal of Financial Intermediation 16:515-54.
2. Almeida, H., M. Campello and M. Weisbach. 2007. Corporate Financial and Investment Policies when Future Financing Is not Frictionless. Working Paper, University of Illinois.
3. Almeida, H. M. and T. Philippon. 2007. The Risk-Adjusted Cost of Financial Distress. Journal of Finance 62:2557-86.
4. Andrade, G. and S. Kaplan. 1998. How Costly Is Financial (not Economic) Distress? Evidence from Highly Leveraged Transactions That Became Distressed. Journal of Finance 53:1443-93.
5. Bergstresser, D., M. A. Desai and J. D. Rauh. 2006. Earnings Manipulation, Pension Assumptions, and Managerial Investment Decisions. Quarterly Journal of Economics 121:157-95.
6. Black, F. 1980. The Tax Consequences of Long-Run Pension Policy. Financial Analysts Journal 36(June): 21-9.
7. Bodie, Z. 1990. The ABO, the PBO, and Pension Investment Policy. Financial Analysts Journal 46:27-34.
8. Bodie, Z. 1995. On the Risk of Stocks in the Long Run. Financial Analysts Journal 51:18-22.
9. Bodie, Z., J. O. Light, R. Mørck, and R. A. Taggart. 1985. Corporate Pension Policy: An Empirical Investigation. Financial Analysts Journal 41:10-6.
10. Bodie Z.,J. O. Light,R. Mørck,R. A. Taggart. 1987. Funding and Asset Allocation in Corporate Pension Plans: An Empirical Investigation, in Z. Bodie, J. Shoven and D. Wise (eds. Issues in Pension Economics. Chicago IL University of Chicago Press.
11. Boyce, S. and R. A. Ippolito. 2002. The Cost of Pension Insurance. Journal of Risk and Insurance 69: 121-70.
12. Buessing, M. and M. Soto. 2006. The State of Private Pensions: Current 5500 Data. Center for Retirement Research Issue in Brief 42.
13. Bulow, J. and M. Scholes. 1983. Who Owns the Assets in a Defined-Benefit Pension Plan? in Z. Bodie and J. Shoven (eds.), Financial Aspects of the U.S. Pension System. Chicago, IL: University of Chicago Pr ess.
14. Campbell, J. and L. Viceira. 2006. Strategic Asset Allocation for Pension Plans. Oxford Handbook of Pensions and Retirement Income. Oxford: Oxford University Press.
15. Center on Federal Financial Institutions. 2004. PBGC: A Primer. COFFI, Washington, DC.
16. Cocco, J. and P. Volpin. 2007. The Corporate Governance of Defined Benefit Pension Plans: Evidence from the United Kingdom. Financial Analysts Journal 63:70-83.
17. Coronado, J. and N. Liang. 2005. The Influence of PBGC Insurance on Pension Fund Finances. Pension Research Council Working Paper 2005-10.
18. Denmark F. 2006. International Paper Company: Out of the Woods. Institutional Investor's Alpha June, 19-29.
19. Friedman, B. M. 1983. Pension Funding, Pension Asset Allocation, and Corporate Finance: Evidence from Individ ual Company Data, in Z. Bodie and J. Shoven (eds.), Financial Aspects of the U.S. Pension System. Chicago, IL: University of Chicago Press.
20. Frieman, Adam, Justin Pettit, Azad Badakhsh, and Kyle Barker. 2005. Optimal Capital Structure and the Corporate Pension. UBS Investment Banking Note. New York: UBS AG.
21. Froot, K. A., D. S. Scharfstein and J. C. Stein. 1993. Risk Management: Coordinating Corporate Investment and Financing Policies. Journal of Finance 48:1629-58.
22. Gold, J. 2005. Accounting/Actuarial Bias Enables Equity Investment by Defined Benefit Pension Plans. North American Actuarial Journal 9(3):1-21
23. Harris, M. and A. Raviv. 1991. The Theory of Capital Structure. Journal of Finance 46:297-335.
24. Harrison, M. J., andW. F. Sharpe. 1983. Optimal Funding and Asset Allocation Rules for Define d Benefit Pension Plans, in Z. Bodie and J. Shoven (eds.), Financial Aspects of the U.S. Pension System. Chicago, IL: University of Chicago Press.
25. Hsieh, S.-J., A. Chen and K. Ferris. 1994. The Valuation of PBGC Insurance Premiums Using an Option Pricing Model. Journal of Financial and Quantitative Analysis 29:89-99.
26. Ippolito, R. 2002. The Reversion Tax's Perverse Result. Regulation Spring, 46-53.
27. Jensen, M. C., andW. H. Meckling. 1976. Theory of the Firm:Managerial Behavior, AgencyCosts and Ownership Structure. Journal of Financial Economics 3:305-60.
28. Kroszner, R S. 2005. Testimony before the Committee on Finance, United States Senate. http://www.chicagogsb.edu/news/2005-02-28txt-kroszner.pdf
29. Kroszner, R. S. and P. E. Strahan. 1996. Regulatory Incenti ves and the Thrift Crisis: Dividends, Mutual-to-Stock Conversions, and Financial Distress. Journal of Finance 51:1285-319.
30. Lehn, K. and A. Poulsen. 1991. Contractual Resolution of Bondholder-Stockholder Confli cts in Leveraged Buyouts. Journal of Law and Economics 34:645-73.
31. Leland, H. E. 1998. Agency Costs, Risk Management, and Capital Structure. Journal of Finance 53:1213-43.
32. Lucas D.,S. Zeldes. 2006 Valuing and Hedging Defined Benefit Pension Obligations-The Role of Stocks Revisited. Working Paper Northwestern University.
33. Lucent Retirees Organization. 2003. Lucent Discloses Pension Governance Process and Fund Performance. http://www.lucentretirees.org/docs/lucent-discloses-pension-governa.htm
34. Marcus, A. 1987. Corporate Pension Policy and the Value of PBGC Insurance, in Z. Bodie, J. Shoven, and D. Wise (eds.), Issues in Pension Economics. Chicago, IL: University of Chicago Press.
35. Mayers, D. and C. W. Smith. 1982. On the Corporate Demand for Insurance. Journal of Business 55:281-96.
36. Mayers, D. and C.W. Smith. 1987. Corporate Insurance and the Underinvestment Problem. Journal of Risk and Insurance 54:45-54.
37. Merton, R. C. and P. A. Samuelson. 1974. Fallacy of the Log- Normal Approximation to Portfolio Decision-Making over Many Periods. Journal of Financial Economics 1:67-94.
38. Morellec, E. and C. W. Smith. 2007. Agency Conflicts and Risk Management. Review of Finance 11:1-23.
39. Myers, S. 1977. Determinants of Corporate Borrowing. Journal of Financial Economics 5:147-75.
40. Parrino, R. and M. Weisbach. 1999. Measuring Investment Distortions Arising from Stockholder-Bondholder Conflicts. Journal of Financial Economics 53:3-42.
41. Pennacchi, G. G. and C. M. Lewis. 1994. The Value of Pension Benefit Guaranty Corporation Insurance. Journal of Money, Credit and Banking 26:735-53.
42. Pension Benefit Guaranty Corporation (PBGC). 1995. Pension Benefit Guaranty Corporation Annual Report. http://www.pbgc.gov/docs/1995-Annual-report.pdf
43. Pension Benefit Guaranty Corporation (PBGC). 2005. Pension Benefit Guaranty Corporation Performance and Accountability Report. http://www.pbgc.gov/docs/2005par.pdf
44. Petersen,M. 1992. Pension Reversions andWorker-StockholderWealth Transfers. Journal of Finance 107:1033-56.
45. Petersen, M. 1994. Cashflow Variability and Firm's Pension Choice: A Role for Operating Leverage. Journal of Financial Economics 36:361-83
46. Petersen, M. 1996. Allocating Assets and Discounting Cash Flows: Pension Plan Finance, in P. A. Fernandez, J. A. Turner and R. P. Hinz (eds.), Pensions, Savings, and Capital Markets. Washin gton, DC: U.S. Department of Labor.
47. Purnanandam, A. Financial Distress and CorporateRisk Management: Theory and Evidence. Journal of Financial Economics (forthcoming).
48. Rauh, J. D. 2006. Investmen t and Financing Constraints: Evidence from the Funding of Corporate Pension Plans. Journal of Finance 61:33-71.
49. Rauh, J. D. 2007. The Effects of Financial Condition on Capital Investment and Financing: Evidence from Variation in Pension Fund Asset Performance. Working Paper, University of Chicago.
50. Samuelson, P. A. 1963. Risk and Uncertainty: A Fallacy of Large Numbers. Scientia 57:1-6.
51. Samuelson, P. A. 1994. The Long-Term Case for Equities and How It Can Be Oversold. The Journal of Portfolio Management 21(1):15-24.
52. Samuelson W.,R. Zeckhauser. 1988 Status Quo Bias in Decision Making. Journal of Risk and Uncertainty 1, 7-59.
53. Sharpe, W. F. 1976. Corporate Pension Funding Policy. Journal of Financial Economics 3:183-93.
54. Smith, C. and R. Stulz. 1985. The Determina nts of Firms' Hedging Policies. Journal of Financial and Quantitative Analysis 20:391-405.
55. Sundaresan, S. and F. Zapatero. 1997. Valuation, Optimal Asset Allocation and Retirement Incentives of Pension Plans. Review of Financial Studies 10:631-60.
56. Sweeting, P. 2005. Funding and Asset Allocation Strategies-Why Firms and Trustees Behave as They Do. Working Paper, Presented to the 2005 U.K. Finance and Investment Board Conference.
57. Tepper, I. 1981. Taxation and Corporate Pension Policy. Journal of Finance 36:1-13.
58. Thaler, R. 1980. Towards a Positive Theory ofConsumer Choice. Journal of Economic Behavior andOrganization 1:39-60.
59. Treynor, J. 1977. The Principles of Corporate Pension Finance. Journal of Finance 32:627-38.