Evaluating the efficiency of defined benefit pension plans in a developing market

Abstract

Purpose

The cost-to-asset ratio is a vital efficiency ratio for any financial institution, as it measures its operating expenses to its asset base. This study uses this ratio to evaluate the efficiency of defined benefit pension plans (DBPPs) in the Republic of Congo using financial and macroeconomic indicators.

Design/methodology/approach

Under the financial indicator, the authors apply vector autoregression (VAR) to a dataset covering 120 months from 2011 to 2020. In addition, the authors use 12 years of data from 2009 to 2020 and the random effects model under macroeconomic indicators.

Findings

Assets and costs together Granger cause the efficiency of the DBPP. However, there is no Granger causality from the combination of assets and costs on the DB public and industry PP efficiencies. The random effects model results show that macroconnect level variables significantly lower the cost-to-asset ratio, thereby improving the PP's efficiency. Macrodisconnect level variables significantly increase the cost-to-asset ratio, thereby deteriorating PP efficiency.

Research limitations/implications

The study is limited to a developing economy in sub-Saharan Africa, which may hinder the generalization of the results. Future studies could use panel samples from sub-Saharan Africa so that inferences could be drawn for the continent and comparisons made with others.

Originality/value

To the best of the authors knowledge, this study is the first in sub-Saharan Africa to assess the efficiency of DBPPs using financial and macroeconomic indicators.

Citation

Mazonga Mfoutou, B.O. and Danquah, R. (2023), "Evaluating the efficiency of defined benefit pension plans in a developing market", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-03-2022-0364