Do Pension Fund Equity Investments Raise Firm Productivity? Evidence From Danish Data

We have constructed a comprehensive dataset that integrates ownership information with Danish registers, enabling us to empirically document a significant relationship between pension fund equity investment and firm productivity. Following such an investment, we observe a substantial increase in firm productivity, averaging between 3% and 5%. This finding is robust and persists across various methodological considerations, including selection issues and a broad array of refinements, such as controlling for the firm’s status as an exporter and the types of co-investors. The productivity effect increases with the equity stake. Additionally, we find that pension funds tend to invest for longer periods than other institutional investors, such as private equity. Consistent with this fact, the estimated productivity increase is positively correlated with the duration of the equity investment by pension funds. Furthermore, the productivity increase is particularly pronounced for unlisted and small firms. These combined findings are consistent with pension funds engaging in long-term financing commitments and alleviating financial constraints on firms, enabling them to make productivity-enhancing investments. Our results suggest that public policies aimed at stimulating pension funding and encouraging pension fund equity holdings could enhance the productivity of the economy.