Posted: 14 Jan 2009 Last revised: 14 Dec 2010
Date Written: May 20, 2010
We examine firms' decisions in freezing their defined-benefit pension plans and the effect it has on shareholders’ wealth. Plan freezes help relieve sponsors of the implicit promises made to employees regarding future compensation. We find evidence that a pension plan freeze has a positive impact on sponsors’ equity returns and credit ratings. Firms that choose to freeze their pension plans experience an increase in equity return and a decrease in the probability of a credit downgrade.
Keywords: Defined benefit pensions, plan freeze, wealth transfer, equity returns, credit ratings
JEL Classification: G23, G32
Suggested Citation: Suggested Citation
Atanasova, Christina and Hrazdil, Karel, Why Do Healthy Firms Freeze Their Defined Benefit Pension Plans? (May 20, 2010). Global Finance Journal, Vol. 21, No. 3, pp. 293-303, 2010. Available at SSRN: https://ssrn.com/abstract=1327599