Market Reaction to Firm Inclusion on the Pension Benefit Guaranty Corporation Underfunding List

23 Pages Posted: 17 Aug 1998

See all articles by Norman H. Godwin

Norman H. Godwin

Auburn University - Harbert College of Business

Kimberly Galligan Key

Auburn University - School of Accountancy

Date Written: March 1998

Abstract

This study investigates stock market reaction to a firm's inclusion on the Pension Benefit Guaranty Corporation's (PBGC) "Top 50" list of firms with the most underfunded pension plans. The PBGC's use of the list to put pressure on firm managers to increase pension funding has been controversial. Abnormal returns calculated around press release dates are not statistically significant, inconsistent with the PBGC's implicit goal of having third parties exert pressure on firm managers to increase funding. However, for one list that is reported by The Wall Street Journal, reaction is statistically positive. The positive reaction is consistent with the theory that firms with underfunded pension obligations have a put option with respect to the PBGC.

JEL Classification: M41, G12

Suggested Citation

Godwin, Norman H. and Galligan Key, Kimberly, Market Reaction to Firm Inclusion on the Pension Benefit Guaranty Corporation Underfunding List (March 1998). Available at SSRN: https://ssrn.com/abstract=115500 or http://dx.doi.org/10.2139/ssrn.115500

Norman H. Godwin (Contact Author)

Auburn University - Harbert College of Business ( email )

415 Magnolia Ave.
301 Lowder Business Building
Auburn, AL 36849
United States
334-844-6225 (Phone)
334-844-5875 (Fax)

Kimberly Galligan Key

Auburn University - School of Accountancy ( email )

415 West Magnolia Avenue
301 Lowder Business Building
Auburn, AL 36849
United States

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