Golden Handcuffs and Corporate Innovation: Evidence from Defined Benefit Pension Plans
By Huu Nhan Duong (Monash University – Department of Banking and Finance; Financial Research Network (FIRN)), Bin Qiu (Missouri Western State University, Craig School of Business) & S. Ghon Rhee (University of Hawaii – Shidler College of Business; University of Hawaii – Department of Financial Economics and Institutions)
This study takes advantage of sharply nonlinear funding rules for tax-qualified defined benefit (DB) plans to identify the effects of employees’ deferred compensation on corporate innovation. We find that firms with higher DB plan value secure more patents and patent citations. An instrumental variable approach and a treatment effects model both support the causal effect of DB plans on corporate innovation. Further analysis reveals that DB plans foster innovation through longer tenures, greater productivity, and more risk-taking on the part of employees but that non-qualified executive pensions weaken this effect.
Source: SSRN
