Integrating corporate ownership and pension fund structures: A general equilibrium approach |
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| Institution: | 1. Bangor University, UK;2. Southern Illinois University, Carbondale, IL, USA;1. Massey University, School of Economics and Finance, Auckland, New Zealand;2. Department of International Trade and Marketing, University of Gediz, Izmir, Turkey;3. Department of International Trade, Bursa Orhangazi University, Bursa, Turkey;4. Department of Business Administration, Iqra University, Gulshan Campus, Karachi, Pakistan;1. BBVA, Spain;2. University of Castilla La-Mancha, Department of Economic Analysis and Finance, 45071 Toledo, Spain;1. School of Business, Villanova University, 800 Lancaster Ave., Villanova, PA 19085, USA;2. Grenoble Ecole de Management, 12, rue Pierre Semard, 38000 Grenoble, France;1. Université Paris-Dauphine, DRM Finance and CREST, France;2. Université de Cergy-Pontoise and THEMA (UMR 8184, CNRS), 33 Boulevard du Port, 95011 Cergy-Pontoise Cedex, France |
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| 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. |
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| Keywords: | Capital structure Defined benefit Defined contribution Marshallian Cross Portfolio choice Tax arbitrage |
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