Golden Handcuffs and Corporate Innovation: Evidence from Defined Benefit Pension Plans

Abstract

This study examines the relation between employee incentives and corporate innovation. We find that firms with a higher defined benefit (DB) pension value secure more patents and patent citations. We further show that pension freezes, which stop the accumulation of pension obligations, negatively affect innovation outcomes. The value of a DB plan enhances innovation by motivating employees to produce higher output and through loyalty. However, pension deficits impede innovation because of the nature of inside debt. Overall, our findings call for a fresh look at pensions by policy makers and practitioners, given the historic shift away from DB plans. (JEL G31, G32, O31, O32). Received: May 28, 2020; Editorial decision: April 20, 2021 by Editor:Andrew Ellul. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.