The effect of defined benefit contribution plans on capital expenditures: Optimal strategies for services, industrial and holding firms

• Main Authors: Aleman, Joanna Leisa P., Castillo, Anne Rene P., Chua, Catherine Lei D., Salubo, Lyla Cherubin R.
• Format: text
• Language: English
• Published: Animo Repository 2016
• Subjects: Pension trusts > Investments > Philippines; Capital investments > Philippines
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/9530
• Institution: De La Salle University

This research aims to show the relationship of retirement plans to capital expenditures. According to Campbell et al. (2012), there exists a negative relationship between pension contributions and capital expenditures and the same premise was used in this research. The companies involved in this study are only those who have defined benefit plans. Defined benefit plans are the type of retirement plans where the investment risk falls on the employer. The study is most relevant to the financial sector to see how a firm's decision on managing their retirement plans would affect their investing capability. This research focused on firms from three sectors which are holdings, services, and industrial. The research involves firm data from 2011 to 2015. The five main variables utilized in the study are capital expenditures (CAPEX), pension plan funded status (PPFS), nonpension cash flow (NCF), Tobin's Q (TQ), and mandatory pension contributions (MPC). The ordinary least squares (OLS) method was used in studying the panel data. The researchers also assumed a random effect model (REM) in running the regression for each sector. The results showed that the capital expenditures for the holdings sector was highest for 2011 with the amount of P6,414,019,680,168. Likewise, the pension plan funded status was at its lowest in 2011 for the holdings Sector at P-272425044527. In running the regression, the results showed that pension contributions negatively affect capital expenditures for the holdings and industrial sector. There is no effect between the two variables for the services sector. This study has proved that in the Philippine economy, the business function in the services sector do not have to put much thought in managing their retirement plans as it does not bear weight on their investment. This study also analyzed that another reason for retirement plans and capital expenditures having no effect for the companies in the services sector is that these companies offer contractual employment and outsource employees.