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Corporate Pension Plans as Takeover Deterrents

Published online by Cambridge University Press:  24 July 2013

João F. Cocco  and
Paolo F. Volpin
João F. Cocco
Affiliation:
[email protected], [email protected], London Business School, Sussex Pl, London NW1 4SA, UK and Centre for Economic Policy Research.
Paolo F. Volpin
Affiliation:
[email protected], [email protected], London Business School, Sussex Pl, London NW1 4SA, UK and Centre for Economic Policy Research.
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Abstract

We use UK data to show that firms that sponsor a defined-benefit pension plan are less likely to be targeted in an acquisition and, conditional on an attempted takeover, they are less likely to be acquired. Our explanation is that the uncertainty in the value of pension liabilities is a source of risk for acquirers of the firm's shares, which works as a takeover deterrent. In support of this explanation we find that these same firms are more likely to use cash when acquiring other firms, and that the announcement of a cash acquisition is associated with positive announcement effects.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 4 , August 2013 , pp. 1119 - 1144
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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