Determinants of defined-contribution corporate pension adoptions in Japan

Abstract

Traditional Japanese corporate pension plans with defined benefits (DB) have been saddled with serious underfunding difficulties since the major stock market crash of the early 1990s. An alternative defined-contribution (DC) plan circumvents the underfunding problem by linking the benefit payout to the market valuation of pension obligations. This paper examines a comprehensive set of Japanese corporations listed on the Tokyo Stock Exchange as to the factors that led to their decision to adopt a DC plan during the period 2001–2015. Our findings point to the relevance of several unique aspects and features of Japanese regulations as well as business practices, in stark contrast to some of the findings reported in the literature focusing on U.S. corporations.