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Corporate pension plans and investment choices: bargaining or conforming?

Duygun, Meryem; Huang, Bihong; Qian, Xiaolin; Tam, Lewis H.K.


Aviva Chair in Risk and Insurance

Bihong Huang

Xiaolin Qian

Lewis H.K. Tam


This paper investigates the impacts of defined-benefit (DB) pension plans on the corporate investment choices between diversifying and non-diversifying investments. We find a firm’s DB plan coverage is negatively associated with its propensity of making a major investment. Subject to a major investment decision, however, the firms with higher DB plan coverage is more likely to diversify, i.e. acquire firms abroad or in other industries, rather than invest in fixed assets or make non-diversifying (i.e. domestic horizontal) acquisitions. Moreover, in diversifying acquisitions, they are more likely to invest in countries or industries with strongly unionized workforce. Further analysis on post-investment performance shows that firms with higher DB plan coverage experience a greater improvement in operating profitability after a diversifying acquisition, and the improvement mainly comes from a higher asset turnover rather than cost reduction. On the other hand, DB plan sponsoring firms experience a decline in profitability after a large capital expenditure or a non-diversifying acquisition. We propose both bargaining motive and conforming motive can explain these results.


Duygun, M., Huang, B., Qian, X., & Tam, L. H. (2018). Corporate pension plans and investment choices: bargaining or conforming?. Journal of Corporate Finance, 50,

Journal Article Type Article
Acceptance Date Oct 16, 2017
Online Publication Date Oct 20, 2017
Publication Date Jun 1, 2018
Deposit Date Oct 17, 2017
Publicly Available Date Apr 21, 2019
Journal Journal of Corporate Finance
Print ISSN 0929-1199
Electronic ISSN 0929-1199
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 50
Keywords Defined-benefit pension; DB plan coverage; bargaining power; Conforming motive; Diversifying acquisitions
Public URL
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