Does Freezing a Defined-Benefit Pension Plan Increase Company Value? Empirical Evidence
19 Pages Posted: 22 Jan 2009 Last revised: 29 Sep 2009
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
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