Employees as Creditors: The Disciplinary Role of Pension Deficits in the Market for Corporate Control

59 Pages Posted: 7 Jan 2011 Last revised: 30 Nov 2012

See all articles by Xin (Simba) Chang

Xin (Simba) Chang

Nanyang Business School, Nanyang Technological University

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School

Wenrui Zhang

The Chinese University of Hong Kong (CUHK) - Department of Finance

Date Written: September 1, 2012

Abstract

This paper examines the disciplinary role of corporate pension deficits in the market for corporate control. We find that companies with larger pension deficits are less likely to engage in diversifying mergers, experience higher merger announcement returns, pay lower premiums to targets, and use a higher percentage of cash in their payment. These results are more evident for acquirers with pension plans that are dominated by actively working employees or collectively bargained by employees. Our findings indicate that corporate pension deficits provide employees with strong incentives to monitor managerial performance and influence managers to make value-enhancing investment decisions.

Keywords: Pension deficits, Market for corporate control, Mergers and acquisitions, Merger announcement returns, Disciplinary role

JEL Classification: G32, G34

Suggested Citation

Chang, Xin and Kang, Jun-Koo and Zhang, Wenrui, Employees as Creditors: The Disciplinary Role of Pension Deficits in the Market for Corporate Control (September 1, 2012). 24th Australasian Finance and Banking Conference 2011 Paper; AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1735785 or http://dx.doi.org/10.2139/ssrn.1735785

Xin Chang

Nanyang Business School, Nanyang Technological University ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

HOME PAGE: http://www.ntu.edu.sg/home/changxin

Jun-Koo Kang

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Nanyang Avenue, Block S3-01b-54
Singapore, 639798
Singapore
(+65) 6790-5662 (Phone)
(+65) 6791-3697 (Fax)

HOME PAGE: http://www.nbs.ntu.edu.sg/nbs_corporate/divisions/bnf/index.asp

Wenrui Zhang (Contact Author)

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong

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