Corporate Post-Retirement Benefit Plans and Leverage

Review of Finance, June 2015, 1-55.

70 Pages Posted: 11 Jan 2011 Last revised: 12 Jun 2015

See all articles by Söhnke M. Bartram

Söhnke M. Bartram

Warwick Business School - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: February 18, 2015


This paper shows that defined benefit pension and health care plans are important for firm leverage around the world. While consolidating off-balance sheet post-retirement plans typically increases effective leverage by 32%, firms reduce their level of regular debt by only 22 cents for every dollar of projected benefit obligation, yielding overall 23% higher total leverage of plan sponsors compared to similar firms without post-retirement plans. The most important driver of substitution rates between regular debt and post-retirement obligations is rule of law, followed by labor market freedom and taxes, where countries with a better rule of law, less labor market freedom and higher marginal corporate tax rates show higher substitution rates. In contrast, pension guarantee funds and priority of unfunded pension obligations are less important for substitution rates.

Keywords: Capital Structure, post-retirement benefits, pension, health care

JEL Classification: G3, F4, F3

Suggested Citation

Bartram, Söhnke M., Corporate Post-Retirement Benefit Plans and Leverage (February 18, 2015). Review of Finance, June 2015, 1-55.. Available at SSRN: or

Söhnke M. Bartram (Contact Author)

Warwick Business School - Department of Finance ( email )

Coventry, CV4 7AL
United Kingdom
+44 (24) 7657 4168 (Phone)
+1 425 952 1070 (Fax)


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