Defined Benefit Company Pensions and Corporate Valuations: Simulation and Empirical Evidence from the United Kingdom

Trivedi, Kamakshya; Young, Garry

doi:10.2139/ssrn.894879

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Defined Benefit Company Pensions and Corporate Valuations: Simulation and Empirical Evidence from the United Kingdom

Bank of England Working Paper No. 289

34 Pages Posted: 5 Apr 2006

See all articles by Kamakshya Trivedi

Kamakshya Trivedi

Bank of England - Domestic Finance Division

This paper examines the role of defined benefit company pensions in amplifying the effect of common shocks to companies' stock market valuations. It identifies and evaluates the significance of two channels of amplification: cross-holdings of equities in pension schemes, and leverage induced by pension liabilities. Econometric analysis of weekly stock market data for a sample of FTSE 350 UK companies confirm that these effects are statistically significant and robust to outlying observations.

Keywords: Cross-holdings, pensions, leverage, stock volatility

JEL Classification: G12, G23, G32

Suggested Citation: Suggested Citation

Trivedi, Kamakshya and Young, Garry, Defined Benefit Company Pensions and Corporate Valuations: Simulation and Empirical Evidence from the United Kingdom (March 2006). Bank of England Working Paper No. 289, Available at SSRN: https://ssrn.com/abstract=894879 or http://dx.doi.org/10.2139/ssrn.894879