Original Research
Do firms’ pension contributions decrease their investment efficiency in Chinese context?
Submitted: 12 June 2022 | Published: 24 March 2023
About the author(s)
Jin Wang, School of Finance and Economics, Guangdong Polytechnic Normal University, Guangzhou, ChinaDeli Wang, School of Accounting, Guangdong University of Foreign Studies, Guangzhou, China
Hai Long, International College, Krirk University, Bangkok, Thailand
Yu Chen, School of International Economics, Anhui International Studies University, Hefei, China
Abstract
Purpose: This research aims to investigate whether increasing the pension contributions of a firm leads to inefficient investments.
Design/methodology/approach: Based on the 26 135 observations of the Chinese listed firms, this study employs ordinary least squares models to investigate the relationship between pension costs and inefficient investments.
Findings/results: This study shows that Chinese listed firms’ pension contribution increments result in fewer investment opportunities and a decreased in investment efficiency. This is insignificant for the more profitable firms and state-owned enterprises. It suggests further that a firm’s pension cost is significantly associated with its investment inefficiency, particularly for cash flow dominated and financing–restricted firms. This indicates a negative association between pension contributions and cash flows, and several pension contributions may lead to a cash flow shortage in the firms.
Practical implications: For managers, they should improve their investment efficiency within an affordable pension plan; for investors, increasing pension costs potentially decrease their investment returns.
Originality/value: Some findings have reference values for some developing countries.
Keywords
Metrics
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