The Effect of Regulations on Pension Risk Shifting: Evidence from the US and Europe

Yanling GUAN*, Daphne Lui

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    18 Citations (Scopus)

    Abstract

    This paper provides evidence that pension regulations can incentivize or curb risk shifting in the investment of defined benefit plan assets. We document that in the US, where the pension insurance premium charged by the Pension Benefit Guaranty Corporation is largely flat, financially distressed firms with severely underfunded plans shift pension investment risk. We further find that risk shifting is mitigated in the UK after the implementation of risk-adjusted pension insurance premiums, and in the Netherlands where full pension funding is mandatory. Overall the results in this paper lend support to the view that structural flaws in the US statutory pension insurance scheme incentivize high-risk sponsors to gamble their pension assets when distress terminations of their plans become foreseeable.

    Original languageEnglish
    Pages (from-to)765-799
    Number of pages35
    JournalJournal of Business Finance and Accounting
    Volume43
    Issue number5-6
    DOIs
    Publication statusPublished - 2016

    Scopus Subject Areas

    • Accounting
    • Business, Management and Accounting (miscellaneous)
    • Finance

    User-Defined Keywords

    • financial distress
    • moral hazard
    • pension investment
    • pension regulations
    • risk shifting

    Fingerprint

    Dive into the research topics of 'The Effect of Regulations on Pension Risk Shifting: Evidence from the US and Europe'. Together they form a unique fingerprint.

    Cite this