DP4932 The Corporate Governance of Defined-Benefit Pension Plans: Evidence from the United Kingdom

Author(s): Joâo Francisco P.D. Cocco, Paolo Volpin
Publication Date: February 2005
Keyword(s): corporate governance, defined benefits, insiders, pension plans, pension trustees
JEL(s): G23, G34
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4932

This paper studies the governance of defined-benefit pension plans in the United Kingdom. We construct a governance measure, equal to the proportion of trustees of the pension plan who are also executive directors of the sponsoring company. Our findings indicate that pension plans of indebted companies with a higher proportion of insider-trustees: (i) invest a higher proportion of the pension plan assets into equities, (ii) contribute less into the pension plan, and (iii) have a larger dividend payout ratio. This evidence supports an agency view, whereby insider-trustees act in the interest of shareholders of the sponsoring company, and not necessarily pension plan members.