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Defined benefit company pensions and corporate valuations: simulation and empirical evidence from the United Kingdom

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  • Kamakshya Trivedi
  • Garry Young

Abstract

This paper examines the role of defined benefit company pensions in amplifying the effect of common shocks to companies' stock market valuations. It identifies and evaluates the significance of two channels of amplification: cross-holdings of equities in pension schemes, and leverage induced by pension liabilities. Econometric analysis of weekly stock market data for a sample of FTSE 350 UK companies confirm that these effects are statistically significant and robust to outlying observations.

Suggested Citation

  • Kamakshya Trivedi & Garry Young, 2006. "Defined benefit company pensions and corporate valuations: simulation and empirical evidence from the United Kingdom," Bank of England working papers 289, Bank of England.
    • Handle: RePEc:boe:boeewp:289
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    File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2006/WP289.pdf
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    Cited by:

    1. Nick Silver, 2006. "The Trouble With Final Salary Pension Schemes," Economic Affairs, Wiley Blackwell, vol. 26(4), pages 53-60, December.

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