Corporate Risk Management and Pension Investment Policy

Yong Li; Darren Henry

doi:10.1016/j.emj.2021.09.003

Corporate Risk Management and Pension Investment Policy

Yong Li, Darren Henry

Accounting & Financial Management

La Trobe University

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

Abstract

In this paper, we study whether firms manage their pension risk exposures within an integrated corporate risk management framework or they manage their pension and firm risk exposures independently following the adoption of fair value pension reporting regulation (IAS 19). Controlling for known factors affecting the risk-taking in pension plan investments, we document a robust negative association both at the cross-section and over time between pension risk and firm systematic risk and operating asset risk during the post-IAS 19 adoption period. The findings suggest that firms manage pension risk as an integral part of firm risk, consistent with a coordinated risk management explanation. Overall, our evidence highlights that pension investment strategy is a dynamic process that is ultimately determined by sponsoring firms' strategic corporate risk management considerations and the important role that changing pension reporting regulation plays in shaping these dynamics. Our conclusions have potential wider implications for ongoing reforms in financial reporting and disclosure policy settings.

Original language	English
Journal	EUROPEAN MANAGEMENT JOURNAL
Early online date	9 Sept 2021
DOIs	https://doi.org/10.1016/j.emj.2021.09.003
Publication status	E-pub ahead of print - 9 Sept 2021

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title = "Corporate Risk Management and Pension Investment Policy",

abstract = "In this paper, we study whether firms manage their pension risk exposures within an integrated corporate risk management framework or they manage their pension and firm risk exposures independently following the adoption of fair value pension reporting regulation (IAS 19). Controlling for known factors affecting the risk-taking in pension plan investments, we document a robust negative association both at the cross-section and over time between pension risk and firm systematic risk and operating asset risk during the post-IAS 19 adoption period. The findings suggest that firms manage pension risk as an integral part of firm risk, consistent with a coordinated risk management explanation. Overall, our evidence highlights that pension investment strategy is a dynamic process that is ultimately determined by sponsoring firms' strategic corporate risk management considerations and the important role that changing pension reporting regulation plays in shaping these dynamics. Our conclusions have potential wider implications for ongoing reforms in financial reporting and disclosure policy settings.",

author = "Yong Li and Darren Henry",

note = "Funding Information: The authors thank the Associate Editor and referees, as well as Tim Boonen, Colin Clubb, Martin Glaum, Yanling Guan, Paul Klumpes, Joshua Rauh, Irina Stefanescu, Ian Tonks, Daphne Lui, Hong Zou, as well as seminar participants at University of Giessen, and La Trobe University, as well as participants at the Netspar International Pension Workshop for helpful discussions and constructive comments. All remaining errors are our own. Publisher Copyright: {\textcopyright} 2021 Elsevier Ltd",

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AU - Li, Yong

AU - Henry, Darren

N1 - Funding Information: The authors thank the Associate Editor and referees, as well as Tim Boonen, Colin Clubb, Martin Glaum, Yanling Guan, Paul Klumpes, Joshua Rauh, Irina Stefanescu, Ian Tonks, Daphne Lui, Hong Zou, as well as seminar participants at University of Giessen, and La Trobe University, as well as participants at the Netspar International Pension Workshop for helpful discussions and constructive comments. All remaining errors are our own. Publisher Copyright: © 2021 Elsevier Ltd

PY - 2021/9/9

Y1 - 2021/9/9

N2 - In this paper, we study whether firms manage their pension risk exposures within an integrated corporate risk management framework or they manage their pension and firm risk exposures independently following the adoption of fair value pension reporting regulation (IAS 19). Controlling for known factors affecting the risk-taking in pension plan investments, we document a robust negative association both at the cross-section and over time between pension risk and firm systematic risk and operating asset risk during the post-IAS 19 adoption period. The findings suggest that firms manage pension risk as an integral part of firm risk, consistent with a coordinated risk management explanation. Overall, our evidence highlights that pension investment strategy is a dynamic process that is ultimately determined by sponsoring firms' strategic corporate risk management considerations and the important role that changing pension reporting regulation plays in shaping these dynamics. Our conclusions have potential wider implications for ongoing reforms in financial reporting and disclosure policy settings.

AB - In this paper, we study whether firms manage their pension risk exposures within an integrated corporate risk management framework or they manage their pension and firm risk exposures independently following the adoption of fair value pension reporting regulation (IAS 19). Controlling for known factors affecting the risk-taking in pension plan investments, we document a robust negative association both at the cross-section and over time between pension risk and firm systematic risk and operating asset risk during the post-IAS 19 adoption period. The findings suggest that firms manage pension risk as an integral part of firm risk, consistent with a coordinated risk management explanation. Overall, our evidence highlights that pension investment strategy is a dynamic process that is ultimately determined by sponsoring firms' strategic corporate risk management considerations and the important role that changing pension reporting regulation plays in shaping these dynamics. Our conclusions have potential wider implications for ongoing reforms in financial reporting and disclosure policy settings.

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JO - EUROPEAN MANAGEMENT JOURNAL

JF - EUROPEAN MANAGEMENT JOURNAL

ER -

Corporate Risk Management and Pension Investment Policy

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