We examine the stock return implications of corporate-defined benefit pension plans in innovative U.S. firms and in R&D- and patent-sorted portfolio specifications. We find that investors underreact to firms increasing off-balance-sheet liabilities. Pensions represent material off-balance-sheet liabilities: in our extensive and large sample (1985–2017, 2541 firms for 26,522 observations), entities with pension plans are 38% more levered when we integrate pension liabilities and assets into the firms’ capital structure. We find that R&D-intensive firms increasing the size of their pension liability subsequently underperform their benchmark returns. Through six alternative R&D-market capitalization portfolios, we also find that this association is stronger for smaller firms. Finally, the relationship remains persistent over a long horizon. These findings are robust to endogeneity concerns addressed through instrumental variables, propensity score matching, and Heckman correction.

How corporate pensions affect stock returns: the role of R&D expenditures

DREASSI, ALBERTO
;
2023-01-01

Abstract

We examine the stock return implications of corporate-defined benefit pension plans in innovative U.S. firms and in R&D- and patent-sorted portfolio specifications. We find that investors underreact to firms increasing off-balance-sheet liabilities. Pensions represent material off-balance-sheet liabilities: in our extensive and large sample (1985–2017, 2541 firms for 26,522 observations), entities with pension plans are 38% more levered when we integrate pension liabilities and assets into the firms’ capital structure. We find that R&D-intensive firms increasing the size of their pension liability subsequently underperform their benchmark returns. Through six alternative R&D-market capitalization portfolios, we also find that this association is stronger for smaller firms. Finally, the relationship remains persistent over a long horizon. These findings are robust to endogeneity concerns addressed through instrumental variables, propensity score matching, and Heckman correction.
2023
10-giu-2023
Pubblicato
https://www.worldscientific.com/doi/10.1142/S2282717X23500020
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11368/3050818
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