Management of Defined-Benefit Pension Funds and Shareholder Value

This paper examines the determinants of portfolio management of definedbeneflt pension funds and the impact of portfolio management on shareholder value. We present evidence that managers of funds that perform poorly (well), relative to funds with similar risk profiles, are more (less) likely to rea...

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Bibliographic Details
Published in:Quarterly journal of business and economics 2002-07, Vol.41 (3/4), p.49-69
Main Authors: Asthana, Sharad, Lipka, Roland
Format: Article
Language:English
Subjects:
Administrative expenses
Analysis
Asset allocation
Asset management
Business risks
Defined benefit pension plan
Defined benefit plans
Defined contribution plans
Earnings
Econometric models
Finance
Financial investments
Financial portfolios
Hypotheses
Influence
Investment advisors
Investment risk
Microeconomics
Pension costs
Pension funds
Pension liabilities
Pension plans
Portfolio management
Portfolio performance
Profitability
Profits
Statistical analysis
Stockholders
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Summary:This paper examines the determinants of portfolio management of definedbeneflt pension funds and the impact of portfolio management on shareholder value. We present evidence that managers of funds that perform poorly (well), relative to funds with similar risk profiles, are more (less) likely to reallocate their pension assets in the following period. Moreover, poorly (well) performing funds, relative to funds with similar risk profiles, are more (less) likely to improve their performances in the subsequent period. The effect on shareholders is mixed. The market reacts negatively to the increase in portfolio risk, while the reaction to improved performance is positive. The results persist even after controlling for financial structure and pension characteristics. This paper contributes to our understanding of the link between shareholder value, the management of pension funds, and the factors that influence the decision making process of fund managers. Pension plan adjustments and improvement in performance are reliably predictable. They impact future earnings and, although not an integral part of core earnings, do reduce future pension costs. Thus, earnings forecasts should incorporate the effects of these predictable adjustments on earnings.
ISSN:0747-5535
1939-8123
2327-8250