Mandatolry Pension Contributions and Firm Risk

10.6293/AQAFA.2013.11.05

Fang Sun

Mandatory Pension Contributions ； Firm Risk ； Internal Financial Resource ； Investment

Advances in Quantitative Analysis of Finance and Accounting

11期（2013 / 12 / 01）

113 - 142

英文

We find that mandatory pension contributions, and more generally a reduction of internally-generated cash flows, reduce firm risk. We interpret this evidence as being due to managers forgoing riskier investments. Consistent with this interpretation, we find that the effect of mandatory pension contributions on firm risk is stronger among firms that are more likely to overinvest. The results are robust across alternative mandatory contribution measures. Our findings support the overinvestment of free cash flow and enhance our understanding of how pension funding rules affect firm risk and investment policies. Regulatory implications are drawn.

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