Does Freezing a Defined-Benefit Pension Plan Increase Company Value? Empirical Evidence

Abstract:     
This study empirically tests whether freezing or closing a defined-benefit (DB) pension plan increases the sponsoring company’s market value. The database used for this study consists of 82 publicly traded U.S. companies that announced freezes/closes in 2003–2007. On the basis of this extensive sample and through a set of parametric and nonparametric tests under the event study methodology, the study finds generally negative or insignificant abnormal returns in stock prices that can be associated with the freeze/close events. Little evidence supports the hypothesis that freezing or closing a DB plan increases company value.

Keywords: Firm Value, Defined Benefit Pensions, Pension Freeze, Event Study

JEL Classifications: G14, G23, G32

Accepted Paper Series