Pension funds invest in stocks in hopes of gleaning good returns. But their investments also have a positive effect on corporate productivity, according to an academic study.
In fact, it increases productivity by 3.5% for public companies after three years and slightly less for nonpublic enterprises, said Roel Beetsma, dean of economics and business at the University of Amsterdam, as he unveiled his study, done in conjunction with several other European economists.
The difference in productivity improvement is that the public companies tended to be larger, plus have access to more capital and technology than the non-listed outfits, he said.
Using data from Denmark, which he said had superior productivity stats than elsewhere, the study found that pension money had the most impact on manufacturing. Beetsma made the presentation during a webinar hosted by the International Centre for Pension Management. He made clear that the findings were applicable to businesses with 50 employees or more in other nations, aside from Denmark.
The average investment was rather large, 10.2% of a company’s equity, on average. This extra capital made a lot of difference, apparently. “There is value added per worker,” he explained. The pension money allows the companies “to bring in new technology” and other helpful aids, he said.
One question the study needed to ask was whether the pension funds sought out highly productive companies to begin with, which would dull the help their investments provided.
But the study found that wasn’t the case: A large batch of the affected companies lacked strong productivity growth prior to the investments. Funds don’t necessarily “select companies based on past productivity,” the professor said.
Beetsma noted that the study didn’t cover whether the pension capital injection helped corporate governance.
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Tags: Denmark, Governance, International Centre for Pension Management, Investment, productivity, Roel Beetsma, Stocks