Does social capital affect risk taking in corporate pensions?
Restricted (Penn State Only)
Author:
Yu, Dawei
Graduate Program:
Business Administration
Degree:
Doctor of Philosophy
Document Type:
Dissertation
Date of Defense:
May 17, 2022
Committee Members:
Matthew Gustafson, Outside Unit & Field Member Samuel Bonsall, Major Field Member Karl Muller, Chair & Dissertation Advisor Brent Ambrose, Program Head/Chair Biqin Xie, Major Field Member
Keywords:
Corporation pension Risk taking Social capital
Abstract:
I investigate whether social capital, defined as the strength of secular cooperative social norms in a geographic community, affects risk taking in corporate defined-benefit pension plans. Consistent with social capital inducing greater pension risk taking, my findings show that firms located in counties with higher levels of social capital invest a larger share of pension assets in risky securities as opposed to safe investments. This relation appears to be causal as the results remain consistent when I instrument for a county’s levels of social capital with the county’s historical racial homogeneity. Cross-sectional tests and a mediation analysis suggest that social capital leads to increased pension risk taking by (1) aligning managers’ risk preference with shareholders’ and (2) alleviating firm distress risk. In addition, social capital’s effect on pension investments is more pronounced in firms with stronger accounting incentives for risk taking, as captured by a high pension-assets-to-operating-income ratio.
