Why Do Healthy Firms Freeze Their Defined Benefit Pension Plans?

Posted: 14 Jan 2009 Last revised: 14 Dec 2010

Christina Atanasova

Simon Fraser University (SFU)

Karel Hrazdil

Simon Fraser University

Date Written: May 20, 2010

Abstract

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

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

Christina Atanasova (Contact Author)

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

Karel Hrazdil

Simon Fraser University ( email )

Faculty of Business Administration
8888 University Drive, Simon Fraser University
Burnaby, British Colombia V5A 1S6
Canada
778-782-6790 (Phone)
778-782-4920 (Fax)

HOME PAGE: http://www.sfubusiness.ca

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