Corporate Pensions and Financial Distress

AFA 2015 Boston Meetings Paper

39 Pages Posted: 17 Jan 2015

See all articles by Ying Duan

Ying Duan

Simon Fraser University (SFU) - Beedie School of Business

Edith S. Hotchkiss

Boston College - Carroll School of Management

Yawen Jiao

University of California, Riverside

Date Written: January 15, 2015

Abstract

We examine the role of corporate pension plans in determining how firms restructure in financial distress. Both defined benefit (DB) and defined contribution (DC) plans can have significant exposures to the company’s own stock, imposing significant losses on employees if the firm defaults and/or files for bankruptcy. We find that firms with DB plans typically have little exposure to the stock prior to default; the degree of underfunding increases significantly as firms near default, but is not related to restructuring types (bankruptcies versus out of court restructurings). In contrast, large exposures to company stock in DC plans often are not reduced prior to default. High levels of own-company stock ownership are positively related to default and bankruptcy probabilities. Our evidence suggests a link between employee-ownership related managerial entrenchment and default risk.

Keywords: Financial distress; Pension plans; Company stock; Underfunding

JEL Classification: G33; G34; G38

Suggested Citation

Duan, Ying and Hotchkiss, Edith S. and Jiao, Yawen, Corporate Pensions and Financial Distress (January 15, 2015). AFA 2015 Boston Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2550311 or http://dx.doi.org/10.2139/ssrn.2550311

Ying Duan

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Edith S. Hotchkiss (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Department of Finance Fulton Hall, Room 330
Chestnut Hill, MA 02467
United States
617-552-3240 (Phone)
617-552-0431 (Fax)

Yawen Jiao

University of California, Riverside ( email )

Riverside, CA 92521
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
348
rank
84,080
Abstract Views
1,817
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information