PRELIMINARY AND INCOMPLETE DO NOT CITE COMMENTS WELCOME

Using a unique panel dataset on pension funding and asset allocation for large U.S. corporations from 2000-2004, this paper documents that firms with weaker financial positions and worse credit ratings rely more heavily on safe pension fund investments, consistent with shareholder value maximizing theories of risk management. Furthermore, firms with large amounts of top-executive ownership of corporate stock take fewer risks in their pension funds, while firms with larger amounts of option compensation take greater risks, controlling for financial effects. Firms respond to deteriorating credit ratings by shifting asset allocations towards debt and cash, but this effect is much larger at firms with high levels of executive stock ownership. The results therefore provide new evidence of an interaction between the managerial and financial theories of corporate risk management