Financial health and the valuation of corporate pension plans

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

View graph of relations

Author(s)

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)459-490
Number of pages32
Journal / PublicationJournal of Pension Economics and Finance
Volume19
Issue number4
Online published19 Nov 2019
Publication statusPublished - Oct 2020

Abstract

We return to the long-standing question ‘Who owns the assets in a defined benefit pension plan?’ Unlike earlier studies, we condition the market's assessment of implicit property rights on the sponsoring firm's financial health. Valuations of financially strong firms, and those that are strengthening, are more responsive to pension plan funding. For these firms, each extra dollar of net plan assets is valued at between $0.50 and $1.00. In contrast, for weak and weakening firms, valuation effects are statistically indistinguishable from zero. This result is consistent with the higher likelihood that they will renege on their pension obligations.

Research Area(s)

  • Bankruptcy scores, defined benefit pension plans, financial distress, property rights, stock market valuation effects

Citation Format(s)

Financial health and the valuation of corporate pension plans. / Cai, Jun; Luo, Miao; Marcus, Alan J.

In: Journal of Pension Economics and Finance, Vol. 19, No. 4, 10.2020, p. 459-490.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review