The Stock Market Reactions to Terminations of Over Funded Pension Plans

Managerial Finance, Volume 24, Number 12, 1998

29 Pages Posted: 1 Nov 2018

See all articles by Nobchanok Singha-Uthorn

Nobchanok Singha-Uthorn

University of New Orleans - College of Business Administration - Department of Economics and Finance

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Date Written: 1998

Abstract

Using most recent firm level data over the period 1986-1994, this study examines the stock market reaction with respect to pension plan type (defined benefit or defined contribution) established following the termination of an over funded DB plan. Generally, we find support for the separation hypothesis as the stock market does react significantly following the termination of an existing over funded DB plan and formation of a new DC or DB plan. We find positive market reaction for new DB plan and negative for new DC plan. The results of this study supports the theoretical implication that it is optimal for DC plan participants to take less risk in asset portfolio than DB plan sponsors. In spite of the existing “safety-harbor” regulations for the sponsors of DC plans, it may be important to not only offer the appropriate investment opportunities, but also to educate employees about the relationship between risk and income in retirement.

Keywords: Stock Market Reaction, Pension Plan, Retirement, DC Plan, DB Plan, Risk, Income

Suggested Citation

Singha-Uthorn, Nobchanok and Hassan, M. Kabir, The Stock Market Reactions to Terminations of Over Funded Pension Plans (1998). Managerial Finance, Volume 24, Number 12, 1998, Available at SSRN: https://ssrn.com/abstract=3263479 or http://dx.doi.org/10.2139/ssrn.3263479

Nobchanok Singha-Uthorn

University of New Orleans - College of Business Administration - Department of Economics and Finance

2000 Lakeshore Drive
New Orleans, LA 70148
United States

M. Kabir Hassan (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

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