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

McFarland, Clifton B.; Pang, Gaobo; Warshawsky, Mark J.

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

Financial Analysts Journal, Vol. 65, No.4, pp. 47-59, July/August 2009

19 Pages Posted: 22 Jan 2009 Last revised: 29 Sep 2009

See all articles by Clifton B. McFarland

Mark J. Warshawsky

Towers Watson; Mercatus Center at George Mason University

Date Written: January 12, 2009

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 Classification: G14, G23, G32

Suggested Citation: Suggested Citation

McFarland, Clifton B. and Pang, Gaobo and Warshawsky, Mark J., Does Freezing a Defined-Benefit Pension Plan Increase Company Value? Empirical Evidence (January 12, 2009). Financial Analysts Journal, Vol. 65, No.4, pp. 47-59, July/August 2009, Available at SSRN: https://ssrn.com/abstract=1330616