Pension Deficits and the Design of Private Debt Contracts

59 Pages Posted: 29 Mar 2018

See all articles by Balasingham Balachandran

Balasingham Balachandran

Monash University - Monash University Malaysia; Financial Research Network (FIRN); La Trobe University - School of Economics and Finance

Huu Nhan Duong

Monash University - Department of Banking and Finance; Financial Research Network (FIRN)

Van Hoang Vu

Royal Melbourne Institute of Technolog (RMIT University) - School of Economics, Finance and Marketing

Date Written: March 22, 2018

Abstract

We find a positive relation between the amount of pension deficits and the cost of bank loans. The effect of pension deficits on the costs of bank loans is driven by financial constraints, information asymmetry problems, and higher pension investment risk. Banks tighten lending terms for firms with larger pension deficits by requiring collateral, increasing the number of loan covenants and shortening loan maturity. Borrowers with larger pension deficits are also more likely to violate covenants in the future. Collectively, these findings indicate that pension deficits represent an additional source of risk priced by banks.

Suggested Citation

Balachandran, Balasingham and Duong, Huu Nhan and Vu, Van Hoang, Pension Deficits and the Design of Private Debt Contracts (March 22, 2018). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3148440

Balasingham Balachandran (Contact Author)

Monash University - Monash University Malaysia ( email )

Sunway Campus
Malaysia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

La Trobe University - School of Economics and Finance ( email )

School of Business
Monash University Malaysia
Bandar Sunway, Selangor 47500
Malaysia

Huu Nhan Duong

Monash University - Department of Banking and Finance ( email )

Melbourne
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Van Hoang Vu

Royal Melbourne Institute of Technolog (RMIT University) - School of Economics, Finance and Marketing ( email )

Level 12, 239 Bourke Street
Melbourne, Victoria 3000
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
224
Abstract Views
1,267
Rank
252,754
PlumX Metrics