FUNDING STATUS OF DEFINED BENEFIT PENSION PLANS AND IDIOSYNCRATIC RETURN VOLATILITY

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

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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)35-57
Journal / PublicationJournal of Financial Research
Volume38
Issue number1
Online published23 Mar 2015
Publication statusPublished - 2015
Externally publishedYes

Abstract

In this article, I explore how the funding status of a sponsoring firm's defined benefit pension plans affects its idiosyncratic volatility. Using a large sample of U.S. firms from 1980 to 2010, I document a positive and significant relation between pension deficits and idiosyncratic volatility. The relation is stronger for firms that are financially constrained and that have a worse information environment. The findings are consistent with the argument that large pension deficits generate greater risk for the firm's future operations and financing, and deteriorate its financial disclosure quality, which raises firm idiosyncratic volatility.