Pension return assumptions and shareholder-employee risk-shifting

URI finance professor, Shingo Goto and Noriyoshi Yanaseb of Keio University collaborate on this recent paper published in the Journal of Corporate Finance.

In this paper, Pension return assumptions and shareholder-employee risk-shifting, the authors explore the motivations behind defined-benefit (DB) pension plan sponsors— risk-shifting or risk-management — through their assumed expected rates of return (ERRs) on the plan assets.

The paper examines if expected rate of returns (ERRs) predict the firms’ future cash-flow allocation between pension funding and corporate investments, in a Japanese sample that mitigates the selection bias concern for US DB plan sponsors.