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Sponsoring Company Finance, Investment and Pension Plan Funding

David C. Webb
The Economic Journal
Vol. 117, No. 520 (Apr., 2007), pp. 738-760
Published by: Wiley on behalf of the Royal Economic Society
Stable URL: http://www.jstor.org/stable/4625514
Page Count: 23
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Sponsoring Company Finance, Investment and Pension Plan Funding
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Abstract

This article presents a model of the interaction of a company's financial and real investment decisions with the financing of its defined benefit pension plan. The pension plan deficit is a debt of the company, with explicit funding requirements and priority in the event of company insolvency. Pension plan deficits and options on future deficits and surpluses affect investment incentives as does the size and composition of company debt. We examine incentives for the firm to pay dividends rather than fund the pension plan and incentives to overfund the pension plan. The effects of pension benefit insurance and minimum funding requirements are shown.

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