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1 results

  • Financial health and the valuation of corporate pension plans

  • Jun Cai, Miao Luo, Alan J. Marcus
  • Journal:
    Journal of Pension Economics & Finance / Volume 19 / Issue 4 / October 2020
    Published online by Cambridge University Press:
    19 November 2019, pp. 459-490

  • 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.