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The influence of pension plan risk on equity risk and credit ratings: a study of FTSE100 companies

Published online by Cambridge University Press:  10 March 2009

DONAL MCKILLOP  and
MICHAEL POGUE
DONAL MCKILLOP
Affiliation:
Queen's University Management School, Queen's University Belfast (email: [email protected])
MICHAEL POGUE
Affiliation:
School of Accounting, University of Ulster (email: [email protected])
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Abstract

This paper examines the relationship between funding risk of defined benefit pension plans and both corporate debt ratings and equity risk measures for FTSE100 companies. Panel based models highlighted a direct relationship between pension plan risk and equity risk. Pension risk was also demonstrated to be factored into credit ratings with the analysis highlighting that the greater the pension risk, the greater the probability of obtaining a lower debt rating. From a rating agency viewpoint, this is positive news, particularly at present when agencies are being criticized for a perceived failure to reflect sub-prime mortgage problems in firm-specific ratings.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 8 , Issue 4 , October 2009 , pp. 405 - 428
Copyright
Copyright © 2009 Cambridge University Press

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