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Sponsoring company finance and investment and defined benefit pension scheme deficits

Webb, David C. (2004) Sponsoring company finance and investment and defined benefit pension scheme deficits. Discussion paper: UBS Pensions Series 023, 487. Financial Markets Group, London School of Economics and Political Science, London, UK.

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Abstract

This paper 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 illustrate the incentives for the firm to pay dividends rather than fund the pension plan and the general incentives to overfund the pension plan. We also illustrate the impact of pension benefit insurance and minimum funding requirements.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2004 The Author
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 487
Date Deposited: 05 Aug 2009 09:12
URL: http://eprints.lse.ac.uk/24699/

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