Familiarity Breeds Alternative Investment: Evidence from Corporate Defined-Benefit Pension Plans
Chemla, Gilles; Atanasova, Christina (2019), Familiarity Breeds Alternative Investment: Evidence from Corporate Defined-Benefit Pension Plans, University of Cyprus - 2019 Department of Accounting and Finance Seminars, 2019-11, Nicosie, Cyprus
TypeCommunication / Conférence
Conference titleUniversity of Cyprus - 2019 Department of Accounting and Finance Seminars
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Abstract (EN)Defined benefit pension plans backed by firms with high R&D expenditures and high land and buildings (L&B) holdings exhibit high private equity and real estate investment, respectively. Within these asset classes, plans with R&D (L&B) intensive sponsoring firms overweigh venture capital (opportunistic real estate). Pension funds with each of these alternative investment tilts underperform other plans by up to 200 basis points. We find evidence supporting the barrier to entry and the risk management hypotheses, but no evidence consistent with the informational advantage, risk shifting, and hedging hypotheses. We conduct several tests that appear to validate a familiarity bias. This familiarity bias in asset allocation to alternative assets reduces corporate DB pension fund resources by about $1.4 billion a year.
Subjects / KeywordsSponsor; R&D; L&B; Alternative assets; Private equity; Real estate; Tilt; Information; Spillover; Familiarity
JELG11 - Portfolio Choice; Investment Decisions
G23 - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
G31 - Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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