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The impact of public pension board of trustee composition on state bond ratings

Author

Listed:
  • John A. Dove

    (Troy University)

  • Courtney A. Collins

    (Rhodes College)

  • Daniel J. Smith

    (Troy University)

Abstract

The declining financial health of public pension systems is increasingly becoming a budgetary concern for many state and local governments. While the academic literature has identified several factors behind the growth in unfunded state and local public pension liabilities, there is mixed evidence on how the composition of a pension system’s board of trustees affects a pension’s financial health. This article contributes to this literature by measuring how public pension board composition affects fund financial health as measured by state bond ratings. With a panel dataset of state pensions between 2001 and 2014 our results indicate that elected board members are consistently associated with lower bond ratings (and thus higher borrowing costs) while appointed and ex-officio board members are associated with higher bond ratings. These results are robust to a number of specifications.

Suggested Citation

  • John A. Dove & Courtney A. Collins & Daniel J. Smith, 2018. "The impact of public pension board of trustee composition on state bond ratings," Economics of Governance, Springer, vol. 19(1), pages 51-73, February.
    • Handle: RePEc:spr:ecogov:v:19:y:2018:i:1:d:10.1007_s10101-018-0201-8
    DOI: 10.1007/s10101-018-0201-8
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    More about this item

    Keywords

    Unfunded liabilities; Public pensions; Pension governance; Board of directors; Bond ratings; Public finance; Corporate governance;
    All these keywords.

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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