Accounting Recognition and the Determinants of Pension Asset Allocation


We identib and test motives for corporate pension asset allocations using a proprietary usset allocation database covering the 1988-1994 period. We focus on the question of whether the recognition of additional mini-mum pension liability in accordance with SFAS No. 87 affects asset al-location, Our results are consistent with the claim that companies allocate their pension assets to avoid the recognition of an additional minimum liability. In particular, companies that are close to the recognition thresh-old prefer jixed-income investments rather than equity investments. By investing in fixed-income securities, firnis increase the correlation between perisiori assets and liabilities, reducing the likelihood of a pension deficit. Our results also suggest that firtiis allocate lheir pension assets between equities and fixed-income investments to reduce the volatility of pension contributions. Finally, we find that larger jirms and firnis with a young workforce invest more in equity securities than in fixed-income securities. 1

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