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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. Financial Markets Group Discussion Papers (487). Financial Markets Group, The London School of Economics and Political Science, London, UK. (Submitted)

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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:
Additional Information: © 2004 The Author
Divisions: Financial Markets Group
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions
Date Deposited: 05 Aug 2009 09:12
Last Modified: 15 Sep 2023 22:58

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