Corporate Pensions and the Maturity Structure of Debt
Journal of Risk and Insurance, Forthcoming
45 Pages Posted: 11 Mar 2016 Last revised: 1 Mar 2017
Date Written: January 8, 2017
In this paper, we investigate the role of pension obligations, the most significant off-balance-sheet item, in determining corporate debt maturity and spreads. We begin by showing a significant and robust positive relationship between pension liabilities and corporate short-term debt ratio. We also find that more pension obligations cause a significant increase in the cost of debt, but this effect is mitigated by short-maturity debt. Overall, our study shows that short-term debt can reduce asymmetric information costs related to pensions.
Keywords: defined benefit pension plan, cost of debt, debt maturity, asymmetric information
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