Employees' risk attitude and corporate risk taking: Evidence from pension asset allocations

Yanling Guan and Dragon Yongjun Tang

Journal of Corporate Finance, 2018, vol. 48, issue C, 261-274

Abstract: Do labor characteristics matter to corporate decisions? We answer this question by examining whether firms consider the risk attitude of rank-and-file employees in investing the pension assets of defined benefit plans. We construct a direct measure of employees' risk attitude from their defined contribution pension portfolio allocations. We find that firms with more risk-averse employees exhibit higher sensitivity to their own default risk in their defined benefit pension investment. The reduction in pension risk taking induced by sponsor risk is more pronounced for low R&D firms, and in the period with stringent pension regulation. We further show that sponsors consider employees' risk aversion in making pension investment decisions regardless of the power of labor union. Overall, our findings suggest that firms incorporate employees' risk attitude into corporate policies.

Keywords: Pension asset allocation; Bankruptcy; Labor; Risk aversion; Risk taking (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:48:y:2018:i:c:p:261-274

DOI: 10.1016/j.jcorpfin.2017.11.001

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