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Integrating corporate ownership and pension fund structures: A general equilibrium approach

M. Shahid Ebrahim (), Ike Mathur and Rhys ap Gwilym

Journal of Banking & Finance, 2014, vol. 49, issue C, 553-569

Abstract: This paper studies pension fund design in the context of investment in the debt and equity of a firm. We employ a general equilibrium framework to demonstrate that: (i) the asset location ‘puzzle’ is purely a partial equilibrium phenomenon, conceived in a risk neutral setting, that disappears with the introduction of sufficient risk aversion; (ii) the inability of policy makers to manage an economy with multiple firms yields a mixed equilibrium, where bonds are observed in both taxable and tax-deferred accounts; and (iii) the Pareto-efficient pension plan comprises of a defined benefit plan.

Keywords: Capital structure; Defined benefit; Defined contribution; Marshallian Cross; Portfolio choice; Tax arbitrage (search for similar items in EconPapers)
JEL-codes: D58 D74 G12 G23 G32 H20 H30 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.jbankfin.2014.05.032

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Handle: RePEc:eee:jbfina:v:49:y:2014:i:c:p:553-569