Abstract
Risk transfers represent a preferred method for removing pension liabilities from corporate balance sheet. We examine the role of institutional shareholders on firm’s decision to offload pension liabilities to professional risk managers. We find that the likelihood of pension risk transfers is higher for firms with higher level of institutional ownership and independent institutional owners. Firms with higher concentration of institutional ownership adopting a passive investment strategy are less likely to complete pension risk transfers. We also document the plan and sponsor-level factors affecting firms’ decision to undertake pension risk transfers.
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Notes
We obtain the number of lump sums from Form 5500, Schedule R, line 3 and active and TV counts from Form 5500, Schedule Sb. The median lump sum percentage is obtained by looking at the plan’s lump sum percentage in each of the available 5500 filings.
When variables are highly persistent, both Fama-MacBeth and OLS yield biased standard errors (Petersen 2009).
To obtain unbiased estimates, the clustered standard errors are adjusted by (N-1)/ (N-P) × G/(G-1), where N is the sample size, P is the number of independent variables, and G is the number of clusters.
“Companies with newly flush pensions see chance to unload the risk” The Wall Street Journal, 2018.
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McCarthy, M., Pana, E. & Weinberger, A. The role of institutional investors in pension risk transfers. J Econ Finan 45, 451–468 (2021). https://doi.org/10.1007/s12197-020-09537-1
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DOI: https://doi.org/10.1007/s12197-020-09537-1