dc.description.abstract | This thesis includes three empirical chapters exploring how a sample of UK
firms with different financial and non-financial characteristics adopt pension derisking
strategies. These chapters address firms’ hedging needs, financial
flexibility and governance, and treat the assets and liabilities of defined benefit
(DB) pension plan as corporate assets and liabilities. Three pension de-risking
strategies are considered: the reallocation of plan assets, the switch from DB to
defined contribution (DC) plans, and the use of buy-ins and buy-outs.
The first chapter of the thesis provides an introduction about the risks of DB
pension plan and institutional background information. The second and third
chapters examine how firms adjust their financial characteristics to target credit
ratings in the period 2004-2013. The second chapter explores the influence of
hedging needs on trade-off decisions between increasing cash holdings and
reducing outstanding debt in order to achieve target credit ratings. Following
Acharya, Almeida and Campello (2007), firms’ hedging needs are measured as
the correlation between cash flows and future investment opportunties.
Collectively, the findings suggest that firms’ hedging needs may correlate to
decisions on capital structure and pension de-risking strategies.
The third chapter focuses on how firms’ desire to maintain financial flexibility
relates to capital structure decisions. It explores whether firms with different
financial flexibility may affect trade-off decisions between increasing cash
holdings and reducing debt in order to target credit ratings. Given that Byoun
(2011) suggests that firms with different financial flexibility may make decision
on capital structure differently, , the UK sample firms are categorised as
developing firms with LFF, growth firms with MFF and mature firms with HFF.
Dividend pay-out ratio is used as a proxy for financial flexibility (DeAngelo and
DeAngelo, 2007). The results demonstrate that that a desire for the firm to
maintain its financial flexibility relates to pension de-risking strategies used.
Berger, Ofek and Yermack (1997) suggest that corporate governance affects a
firm’s debt level. In this context, the fourth chapter of the thesis examines the
relationship between corporate governance and capital structure using a
sample of FTSE All-share firms for the period 2005-2014. The findings suggest
that corporate governance measured by board size, independence and insider
ownership are negatively related to debt level, while institutional ownership is
positively related to debt level. This study further examines the relationship
between corporate governance and pension de-risking strategies. The finding
suggests that firms with large and more independent boards are more likely to
invest their pension assets in bonds, whereas firms with higher institutional and
insider ownership are more likely to invest their pension assets in equities. In
addition, firms with more independent boards are more likely to retain their DB
pension plans, while firms with greater institutional ownership are more likely to
switch from DB to DC pension plans. Overall, pension de-risking strategies and
capital structure are found to be related to corporate governance. | en_GB |