The impact of pension financing on company performance

Sammanfattning: The aim of this study is to examine whether the risk and return of Swedish companies differ depending on the way they meet their pensions obligations. In particular we compare the two possible solutions for financing ITP2, that is the PRI-method, where pension provisions are invested in the companies' assets and kept as a liability on the balance sheet, and the Alecta-method, where pension provisions are invested in a pension fund by the insurance company Alecta. We also investigate whether the relative benefit of choosing one method over the other differ across industries. In order to measure the risk and return, we use return on equity and to evaluate our hypothesis we use the paired sample t-test, binomial test and rank sum test. We use data from 46 Swedish comparable companies between 1961-2016. We find that companies that use the PRI-method perform marginally better than companies using the Alecta-method. We also find that companies using the Alecta-method have more volatile returns than companies using the PRI-method. However, neither of these differences are significant. Furthermore, we do not find any evidence that companies within a particular sector benefit more by using one method over the other.