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

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.

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Keywords: Equity Investments, Research Sources, Corporate Finance, Long- and Short-Term Financing Decisions, Risk Measurement and Management, Firm/Enterprise Risk, Business Strategy, Long-Term Strategic Planning