Pension De-Risking Choice and Firm Risk: Traditional versus Innovative Strategies

Zezeng Li, Alper Kara

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

We examine the determinants of firms defined-benefit pension plan de-risking strategy choices and their impact on firm risk. We compile a hand-collected dataset for FTSE 350 firms for the period of 2009–2017. We find that hard freezing and pension buy-ins are more likely to be implemented when pension plans have longer investment horizons. In particular, pension plans that are exposed to higher investment risk are more likely to adopt pension buy-ins. Firms with larger capital expenditure and market capitalization are more likely to utilise innovative de-risking strategies (i.e. buy-in and longevity swap) in addition to traditional strategies (i.e. soft and hard freezing). Financially constrained firms are more likely to implement longevity swap over pension buy-ins. We also find that implementing pension de-risking strategies reduce firm risk. However, the effectiveness varies depending on the strategy with buy-ins having the largest impact in reducing risk.
Original languageEnglish
Article number102064
Number of pages17
JournalInternational Review of Financial Analysis
Volume81
Early online date6 Feb 2022
DOIs
Publication statusPublished - 1 May 2022

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