Financial flexibility and tax incentives: Evidence from defined benefit corporate pension plans in Japan

Shingo Goto, Noriyoshi Yanase

Research output: Contribution to journalArticle


Contrary to the objective of a major corporate pension reform in Japan to enhance retirement income security, and despite the increased relative tax benefits of externally-funded plans, the number of firms that do not sponsor externally-funded defined benefit plans or defined contribution plans has been increasing steadily. We study the common characteristics of firms sponsoring only traditional internally-funded lump sum plans that provide only weak protection of the employees' retirement benefits. We find that smaller firms with higher growth prospects (price-to-book ratios) and a younger workforce are less likely to adopt externally-funded plans and more likely to terminate them when they have one. Firms sponsoring only internally-funded plans tend to exhibit lower profitability than their peers with otherwise similar characteristics. These results suggest that smaller firms with higher growth prospects and a younger workforce tend to have stronger incentives to ensure financial flexibility by providing only weak protection of their employees' retirement benefits.

Original languageEnglish
Pages (from-to)753-776
Number of pages24
JournalGeneva Papers on Risk and Insurance: Issues and Practice
Issue number4
Publication statusPublished - 2013 Oct 1
Externally publishedYes



  • Japanese firms
  • corporate pension plans
  • financial flexibility
  • internally-funded lump sum plans
  • retirement benefits
  • tax incentives

ASJC Scopus subject areas

  • Accounting
  • Business, Management and Accounting(all)
  • Finance
  • Economics and Econometrics

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