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Sponsoring Company Finance, Investment and Pension Plan Funding

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  • David C Webb

Abstract

This article 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 examine incentives for the firm to pay dividends rather than fund the pension plan and incentives to overfund the pension plan. The effects of pension benefit insurance and minimum funding requirements are shown. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

Suggested Citation

  • David C Webb, 2007. "Sponsoring Company Finance, Investment and Pension Plan Funding," Economic Journal, Royal Economic Society, vol. 117(520), pages 738-760, April.
    • Handle: RePEc:ecj:econjl:v:117:y:2007:i:520:p:738-760
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    Cited by:

    1. Joyce, Michael & Liu, Zhuoshi & Tonks, Ian, 2014. "Institutional investor portfolio allocation, quantitative easing and the global financial crisis," Bank of England working papers 510, Bank of England.
    2. Douglas, Graeme & Roberts-Sklar, Matt, 2018. "What drives UK defined benefit pension funds' investment behaviour?," Bank of England working papers 757, Bank of England.
    3. Bunn, Philip & Smietanka, Pawel & Mizen, Paul, 2018. "Growing pension deficits and the expenditure decisions of UK companies," Bank of England working papers 714, Bank of England.
    4. Shi, Z., 2009. "Three essays in pension finance," Other publications TiSEM 9b1d0e99-6828-4ed0-aae7-5, Tilburg University, School of Economics and Management.

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